PROPERTY INSURANCE FUNDAMENTALS

A Continuing Education Course

by

CPMI Professional Development, Inc.

1 CPMI Professional Development, Inc.

 Copyright November 2015 First printed 1999

CPMI Professional Development, Inc., 613 Countryside Drive, Germantown Hills, IL 61548
e-mail: info@cpmipro.com Phone: 815-271-8200 Toll Free: 888-229-0451 Website: www.cpmipro.com

This textbook and the material herein are intended for the exclusive use of participants in the training programs of CPMI
Professional Development, Inc.

This material is designed for educational purposes only and is not intended as financial or legal advice. If legal or other
professional advice is required, the services of a competent professional should be sought.

Any reproduction of this workbook or any portion of it without the written permission of CPMI Professional Development,
Inc. is strictly prohibited and will be prosecuted to the full extent of the law.

2 CPMI Professional Development, Inc.

 Table of Contents
Section I - General Insurance..................................................................................................................................9
Property and Casualty Concepts........................................................................................................................9
Personal Lines vs Commercial Lines.......................................................................................................................9
Risk Management Key Terms..................................................................................................................................9
Deposit Premium......................................................................................................................................................10
Tort...........................................................................................................................................................................10
Methods of Handling Risk.....................................................................................................................................10
Avoidance.................................................................................................................................................................10
Retention..................................................................................................................................................................10
Sharing......................................................................................................................................................................10
Reduction..................................................................................................................................................................10
Transfer.....................................................................................................................................................................10
Elements of Insurable Risks...................................................................................................................................10
Adverse Selection...................................................................................................................................................11
Law of Large Numbers...........................................................................................................................................11
Reinsurance.............................................................................................................................................................11
Limits of Liability...................................................................................................................................................11
Deductible...............................................................................................................................................................11
Insurers............................................................................................................................................................12
Types of Insurers....................................................................................................................................................12
Stock Companies......................................................................................................................................................12
Mutual Companies...................................................................................................................................................12
Assessment Mutual Insurers.....................................................................................................................................12
Self Insurers..............................................................................................................................................................13
Reciprocals (Reciprocal Insurers)............................................................................................................................13
Risk Retention Groups.............................................................................................................................................13
Purchasing Groups...................................................................................................................................................13
RRG vs PG...............................................................................................................................................................13
Fraternal Benefit Societies (Self-Insurers)...............................................................................................................13
Syndicate Insurers/Lloyd's Associations..................................................................................................................13
Private Versus Government Insurers........................................................................................................................14
Admitted vs Non-admitted Insurers.......................................................................................................................14
Domestic, Foreign, and Alien Insurers...................................................................................................................14
Financial Status (Independent Rating Services)....................................................................................................14
Marketing (Distribution Systems)..........................................................................................................................14
Producers and General Rules of Agency..........................................................................................................15
Insurer as Principal.................................................................................................................................................15
Producer/Insurer Relationship................................................................................................................................15
Agency Agreement/ Contract...................................................................................................................................15
Difference between an Insurance Agent and a Broker.............................................................................................15
Authority & Powers of Producers..........................................................................................................................15
Law of Agency.........................................................................................................................................................15
Express.....................................................................................................................................................................15
Implied......................................................................................................................................................................15
Apparent...................................................................................................................................................................16
Responsibilities to the Applicant/Insured...............................................................................................................16
Contracts..........................................................................................................................................................16
Elements of a Legal Contract.................................................................................................................................16
1- Offer and Acceptance...........................................................................................................................................16
2- Consideration (Exchange of Consideration)........................................................................................................16
3- Competent parties................................................................................................................................................16
4- Legal purpose.......................................................................................................................................................16
Distinct Characteristics of an Insurance Contract..................................................................................................16
Contract of Adhesion................................................................................................................................................17
Aleatory Contract.....................................................................................................................................................17
Personal Contract.....................................................................................................................................................17
Unilateral Contract...................................................................................................................................................17

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 Conditional Contract................................................................................................................................................17
Legal Interpretations Affecting Contracts..............................................................................................................17
Ambiguities in a Contract of Adhesion....................................................................................................................17
Reasonable Expectations..........................................................................................................................................17
Indemnity..................................................................................................................................................................17
Utmost Good Faith...................................................................................................................................................17
Representations/Misrepresentations.........................................................................................................................17
Warranties.................................................................................................................................................................17
Concealment.............................................................................................................................................................17
Fraud.........................................................................................................................................................................18
Waiver and Estoppel.................................................................................................................................................18
Unfair Marketing Practices....................................................................................................................................18
Boycotting................................................................................................................................................................18
Intimidation..............................................................................................................................................................18
Misappropriation of Funds.......................................................................................................................................18
Rebating....................................................................................................................................................................18
Redlining..................................................................................................................................................................18
Section I - General Insurance Review Questions.............................................................................................19
Section II - Property Insurance Basics..................................................................................................................20
Principles and Concepts...................................................................................................................................20
Insurable Interest....................................................................................................................................................20
Underwriting...........................................................................................................................................................20
Function....................................................................................................................................................................20
Sources of Underwriting Information......................................................................................................................20
Rating Types.............................................................................................................................................................20
Loss ratio..................................................................................................................................................................20
Rates.......................................................................................................................................................................20
Types of Rates..........................................................................................................................................................20
Loss Costs.................................................................................................................................................................21
Components/Premium Determination......................................................................................................................21
Hazards...................................................................................................................................................................21
Physical....................................................................................................................................................................21
Moral........................................................................................................................................................................21
Morale......................................................................................................................................................................21
Legal.........................................................................................................................................................................21
Causes of Loss (Perils)...........................................................................................................................................21
Named Perils vs. Open Perils.................................................................................................................................21
Direct and Indirect Losses......................................................................................................................................21
Direct Loss...............................................................................................................................................................21
Consequential or Indirect Losses.............................................................................................................................21
Liability..................................................................................................................................................................21
Absolute/Strict Liability...........................................................................................................................................21
Vicarious Liability....................................................................................................................................................21
Proximate Cause.....................................................................................................................................................22
Blanket vs. Specific Insurance...............................................................................................................................22
Basic Types of Construction...................................................................................................................................22
Basic Types of Construction.....................................................................................................................................22
Loss Valuation........................................................................................................................................................22
Resale Value.............................................................................................................................................................23
Actual Cash Value....................................................................................................................................................23
Replacement Cost.....................................................................................................................................................23
Functional Replacement Cost...................................................................................................................................23
Guaranteed Replacement Cost.................................................................................................................................23
Market Value............................................................................................................................................................23
Agreed Value............................................................................................................................................................23
Stated Amount..........................................................................................................................................................23
Valued Policy............................................................................................................................................................23
Limit of Liability......................................................................................................................................................23
Fire Legal Liability...................................................................................................................................................23

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 Policy Structure...............................................................................................................................................23
Declarations and Definitions..................................................................................................................................23
Insuring Agreement or Clause................................................................................................................................23
Conditions...............................................................................................................................................................23
Exclusions & Endorsements...................................................................................................................................24
Additional/Supplementary Coverage.....................................................................................................................24
Common Policy Provisions.............................................................................................................................24
Insureds-Named, First Named, Additional.............................................................................................................24
Policy Period..........................................................................................................................................................24
Policy Territory.......................................................................................................................................................24
Deductibles.............................................................................................................................................................24
Other Insurance......................................................................................................................................................24
Non-concurrency......................................................................................................................................................24
Primary and Excess..................................................................................................................................................24
Handling of Claims- Pro-Rata vs. Contribution by Equal Shares............................................................................25
Pro-rata.....................................................................................................................................................................25
Contribution by Equal Shares...................................................................................................................................25
Policy Limits..........................................................................................................................................................25
Restoration/Non-reduction of Limits.....................................................................................................................25
Coinsurance............................................................................................................................................................25
Vacancy or Unoccupancy.......................................................................................................................................25
Named Insured Provisions......................................................................................................................................26
Insured's Duties after Loss (Claims Handling)........................................................................................................26
Appraisal & Arbitration............................................................................................................................................26
Assignment...............................................................................................................................................................26
Abandonment...........................................................................................................................................................26
Insurer Provisions...................................................................................................................................................26
Duty to Defend.........................................................................................................................................................26
Liberalization Clause................................................................................................................................................26
Subrogation..............................................................................................................................................................26
Salvage.....................................................................................................................................................................26
Claim Settlement Options........................................................................................................................................26
Third-Party Provisions...........................................................................................................................................27
Standard Mortgagee Clause......................................................................................................................................27
Loss Payable Clause.................................................................................................................................................27
No Benefit To the Bailee..........................................................................................................................................27
.........................................................................................................................................................................27
State Laws, Regulations and Required Provisions...........................................................................................27
State Property and Casualty Insurance Guaranty Association...............................................................................27
Standard Fire Policy...............................................................................................................................................27
Cancellation and Non-renewal...............................................................................................................................27
Private Residence.....................................................................................................................................................28
Commercial..............................................................................................................................................................28
Basic Property Insurance-Death of Named Insured.................................................................................................28
Negligence..............................................................................................................................................................28
Elements of a Negligent Act.....................................................................................................................................28
Four Basic Categories of Individuals that Cannot Be Held Negligent.....................................................................28
Defenses Against Negligence...................................................................................................................................28
Binders....................................................................................................................................................................29
Insurance Consultation Services Exemption..........................................................................................................29
Fair Credit Reporting Act................................................................................................................................29
Use of Credit Information......................................................................................................................................30
How Long can Negative Information Stay on a Credit Report?..............................................................................30
Privacy Protection...........................................................................................................................................30
Terrorism Risk Insurance Act..........................................................................................................................30
Extension Act of 2005............................................................................................................................................31
Section III - Dwelling Policy................................................................................................................................34
Characteristics and Purpose.............................................................................................................................34

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 Coverage Forms: Perils Insured Against and Property Covered......................................................................34
Basic Form (DP-1).................................................................................................................................................34
Broad Form (DP-2)................................................................................................................................................35
Special Form (DP-3)..............................................................................................................................................35
General Exclusions..........................................................................................................................................36
Conditions.......................................................................................................................................................36
Selected Endorsements....................................................................................................................................36
Special Provisions for States..................................................................................................................................36
Automatic Increase in Insurance............................................................................................................................37
Broad Theft Coverage............................................................................................................................................37
Dwelling Under Construction................................................................................................................................37
Personal Liability Supplement.........................................................................................................................37
Section III - Dwelling Review Questions........................................................................................................38
Section IV - Homeowners Policy..........................................................................................................................39
Coverage Forms...............................................................................................................................................39
HO-1.......................................................................................................................................................................39
HO-2 Through HO-8..............................................................................................................................................39
Broad Form/HO-2 (Named Peril).............................................................................................................................39
Special Form/HO-3 (All-Risks/Open Peril).............................................................................................................39
Homeowners Contents/Tenant/Renter's Coverage/HO-4.........................................................................................39
Comprehensive Form/HO-5 (All-Risk/Open Peril).................................................................................................39
Condominium Unit Owner Form/HO-6...................................................................................................................40
Property and Liability Coverages....................................................................................................................40
Coverage A-Dwelling.............................................................................................................................................40
Coverage B-Other Structures.................................................................................................................................40
Coverage C-Personal Property...............................................................................................................................40
Coverage D-Loss of Use........................................................................................................................................41
Coverage E-Personal Liability...............................................................................................................................41
Coverage F-Medical Payments to Others..............................................................................................................41
Additional Coverages.............................................................................................................................................41
Perils Insured Against......................................................................................................................................42
Broad Form/HO-2, Named Perils:............................................................................................................................42
Additional Homeowner Notes.........................................................................................................................42
Pair and Sets Clause.................................................................................................................................................42
Additional/Supplemental Coverages........................................................................................................................42
Exclusions.......................................................................................................................................................43
Conditions.......................................................................................................................................................44
Personal Property Replacement Cost.....................................................................................................................44
Selected Endorsements....................................................................................................................................45
Special Provisions for States..................................................................................................................................45
Limited Fungi, Wet or Dry Rot, or Bacteria Coverage..........................................................................................45
Permitted Incidental Occupancies..........................................................................................................................45
Earthquake..............................................................................................................................................................45
Scheduled Personal Property/ Personal Article Floater.........................................................................................45
Home Day Care......................................................................................................................................................45
Mobile Home Policies.....................................................................................................................................46
Restrictions on Mobile Home Policy Coverage.......................................................................................................46
Section IV - Homeowners Review Questions..................................................................................................47
Section V - Commercial Package Policy (CPP)....................................................................................................49
Insurance Services Office (ISO)...............................................................................................................................49
Components of a Commercial Policy..............................................................................................................49
Common Policy Declarations.................................................................................................................................49
Interline Endorsements...........................................................................................................................................50
One or More Coverage Parts..................................................................................................................................50
Commercial Property.......................................................................................................................................50
Commercial Property Conditions Form.................................................................................................................50

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 Coverage Forms......................................................................................................................................................50
Building and Personal Property................................................................................................................................50
Condominium Association.......................................................................................................................................51
Condominium Commercial Unit-Owners................................................................................................................51
Builders Risk............................................................................................................................................................51
Business Income.......................................................................................................................................................51
Legal Liability..........................................................................................................................................................51
Extra Expense...........................................................................................................................................................51
Causes of Loss Forms: Basic, Broad and Special..................................................................................................52
Selected Commercial Property Endorsements.......................................................................................................52
Ordinance or Law.....................................................................................................................................................52
Spoilage....................................................................................................................................................................52
Peak Season Limit of Insurance...............................................................................................................................52
Value Reporting Form..............................................................................................................................................52
Commercial Inland Marine..............................................................................................................................52
Nationwide Marine Definition...............................................................................................................................53
Commercial Inland Marine Conditions Form........................................................................................................53
Inland Marine Coverage Forms..............................................................................................................................53
Accounts Receivable................................................................................................................................................53
Bailee's Customer.....................................................................................................................................................53
Commercial/Contractor's Equipment Floater...........................................................................................................53
Electronic Data Processing.......................................................................................................................................53
Equipment Dealers...................................................................................................................................................53
Installation Floater....................................................................................................................................................53
Jeweler's Block.........................................................................................................................................................54
Signs.........................................................................................................................................................................54
Camera & Musical Instrument Dealers Form..........................................................................................................54
Valuable Papers and Records...................................................................................................................................54
Transportation Coverages.......................................................................................................................................54
Common Carrier Cargo Liability.............................................................................................................................54
Motor Truck Cargo Forms........................................................................................................................................54
Transit Coverage Forms...........................................................................................................................................54
Equipment Breakdown Coverage....................................................................................................................55
Equipment Breakdown Protection Coverage Form...............................................................................................55
Selected Endorsements...........................................................................................................................................56
Business Income - Report of Values.........................................................................................................................56
Actual Cash Value....................................................................................................................................................56
Farm Coverage................................................................................................................................................56
Farm Property Coverage Forms.............................................................................................................................56
Coverage A.............................................................................................................................................................56
Coverage B.............................................................................................................................................................56
Coverage C.............................................................................................................................................................56
Coverage D.............................................................................................................................................................56
Coverage E.............................................................................................................................................................56
Coverage F..............................................................................................................................................................56
Coverage G.............................................................................................................................................................56
Mobile Agricultural Machinery and Equipment Coverage Form..........................................................................56
Livestock Coverage Form......................................................................................................................................57
Definitions..............................................................................................................................................................57
Causes of loss (Basic, Broad and Special).............................................................................................................57
Conditions...............................................................................................................................................................57
Exclusions...............................................................................................................................................................59
Limits......................................................................................................................................................................60
Additional Coverages.............................................................................................................................................61
Farm Umbrella Coverage.........................................................................................................................................61
Section V - Commercial Property Policy Review Questions...........................................................................62
Section VI - Business Owners Policy (BOP)........................................................................................................64
Characteristics and Purpose.............................................................................................................................64

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 Business Owners Policy (Section I) Property...............................................................................................65
Coverages...............................................................................................................................................................65
Exclusions...............................................................................................................................................................65
Deductibles.............................................................................................................................................................65
Loss Conditions......................................................................................................................................................65
General Conditions.................................................................................................................................................66
Optional Coverages................................................................................................................................................66
Business Owners Policy (Section II) - Liability...............................................................................................67
Business Liability...................................................................................................................................................67
Medical Expenses...................................................................................................................................................67
Conditions...............................................................................................................................................................67
Exclusions...............................................................................................................................................................67
BOP Standard Form Exclusions...............................................................................................................................67
BOP Special Form Exclusions.................................................................................................................................67
Definitions..............................................................................................................................................................67
Business Owners Policy (Section III) - Common Policy Conditions...............................................................68
BOP Cause of Loss Form & Coverages...................................................................................................................68
BOP Additional Coverages.......................................................................................................................................68
BOP Extended Coverages........................................................................................................................................68
Selected Endorsements...........................................................................................................................................68
State Changes...........................................................................................................................................................68
Protective Safeguards...............................................................................................................................................68
Utility Services-Direct Damage Replacement Cost Coverage..............................................................................68
Utility Services-Time Element Coverage..............................................................................................................68
Section VII - Other Coverages and Options..........................................................................................................71
Aviation Insurance...........................................................................................................................................71
Aircraft Hull...........................................................................................................................................................71
Aircraft Liability.....................................................................................................................................................71
Ocean Marine Insurance..................................................................................................................................71
Major Coverages....................................................................................................................................................71
Hull Insurance..........................................................................................................................................................71
Cargo Insurance........................................................................................................................................................71
Freight Insurance......................................................................................................................................................71
National Flood Insurance Program..................................................................................................................71
Write Your Own versus Government Flood Insurance Policies.........................................................................71
Eligibility................................................................................................................................................................72
Coverages...............................................................................................................................................................72
Limits......................................................................................................................................................................72
Other Policies..................................................................................................................................................73
Boatowners.............................................................................................................................................................73
Difference in Conditions........................................................................................................................................73
Residual Markets including FAIR Plans..........................................................................................................73
Joint Underwriting/Joint Reinsurance Pool...........................................................................................................73
Mine Subsidence Insurance.............................................................................................................................74
Federal Crop Insurance and the RMA.............................................................................................................74
Section VII - Other Coverages and Options Review Questions.......................................................................75
Answers to Review Questions.........................................................................................................................76
Section I - General Insurance.................................................................................................................................76
Section II - Property Insurance Basics...................................................................................................................76
Section III - Dwelling Policy.................................................................................................................................76
Section IV - Homeowners Policy...........................................................................................................................77
Section V - Commercial Property Policy...............................................................................................................78
Section VI - Businessowners Policy......................................................................................................................78
Section VII - Other Coverages and Options..........................................................................................................78
Alphabetical Index................................................................................................................................................80

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 Section I - General Insurance
PROPERTY AND CASUALTY CONCEPTS
Personal Lines vs Commercial
Lines
Property insurance and Casualty insurance can be
further divided into Personal and Commercial lines.
Personal lines includes Homeowners, Personal Auto
insurance and other related things owned by
individuals. Commercial lines includes Business
Property and Liabilities (Loss caused by the
business to others) Commercial Auto (Trucking,
Business Auto) owned by businesses, and also
includes Commercial Crime coverages.
Risk Management Key Terms
Insurance
Insurance is a contract that binds the insurer to
indemnify (compensate) the insured against
specified types of loss in return for money
(premiums). Insurance is designed to protect the
financial well-being of an individual, company, or
other entity against the financial risks associated
with unexpected loss. In exchange for the premium
payments from the insured, the insurer agrees to pay
the policyholder upon the occurrence of specific
events. In most instances, the insured pays for a
portion of each loss in the form of a policy
deductible, and the insurer pays for the balance of
the loss up to the policy limit of insurance.
Indemnity
The underlying principle of insurance which is
restoring an insured to the same financial position
that existed before a loss occurred.
Loss
The source of a claim for damages under an
insurance policy; losses cause a financial loss to the
insured due to loss of property, a liability from
something the insured did to someone else, or the
loss due to the loss of a loved one, or losses due to
medical problems. Loss arises from the occurrence
of an event that is insured by a policy.
Direct Physical Loss
A loss in which damage occurs as the result of an
occurrence without an intervening cause, such as
hail damage to the roof of a house.
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Intervening Cause
An event that interrupts the chain of causation by
providing an independent cause of the final result.
Indirect or Consequential Loss
A loss in which damage occurs as the result of a
direct loss, such as the insured's increase in
expenses when required to stay in a hotel because
a hail-damaged home cannot be lived in.
Risk
Risk has two meanings. (1) The property or party
that is insured. (2) The uncertainty of loss.
Pure Risk
Situation that only involves the chance for loss, or
no loss, such as property ownership.
Speculative Risks
Situation that involves the chance for either a loss or
a gain, such as gambling.
Relationship Between Risk & Premium
There is a direct correlation between risk and
premium. The greater the risk, either in value or in
potential for a loss or claim, the greater will be the
premium.
Exposure
The condition of being at risk for financial loss
due to hazards or unforeseen events.
Hazard
A condition that increases the chance for loss or the
severity of loss. There are four types:
1. Physical--Physical hazards are created by
the use, condition, or occupancy of property,
such as damaged steps or worn auto tires.
2. Moral--Moral hazards are created by the
insured's habits, such as dishonesty or
criminal activity. It is a situation in which
one party gets involved in a risky event
knowing that it is protected against the risk
and the other party will incur the cost.
3. Morale--Morale hazards are created by the
attitudes of the insured, such as
indifference. An example would be not
 making sure doors and windows are locked
before leaving home.
4. Legal--Legal risks are created when legal
authority in a certain situation is unclear or
unsettled. These can arise from changes in
the law or from court rulings. An example
would be a change in the building code
requiring new construction to use different
materials.
Peril
The cause of a loss or the event insured against.
Examples-fire, lightning, theft, etc.
1. Named Peril Policy-- A policy that only
provides insurance for perils that are
specifically listed, or named, in then policy.
2. Open Perils PolicyA policy that provides
insurance for all perils except those
specifically exclude in the policy.
Accident
An unforeseen, unintended event that is identifiable
as to time and place
Occurrence
An accident, including continuous and repeated
exposure to conditions, that causes bodily injury or
property damage neither expected nor intended by
the insured.
Deposit Premium
An initial or provisional premium required by an
insurer that is based on estimated information and is
subject to adjustment after the end of the policy
period. After adjustment, the premium becomes the
final premium. (Most often used in workers'
compensation and liability insurance.)
Tort
In common law jurisdictions, a tort is a civil wrong
that unfairly causes someone else to suffer loss or
harm resulting in legal liability for the person who
commits the tortious act. Although crimes may be
torts, the cause of legal action is not necessarily a
crime, as the harm may be due to negligence which
does not amount to criminal negligence. The victim
of the harm can recover their loss as damages in a
lawsuit. In order to prevail, the plaintiff in the lawsuit
must show that the actions or lack of action was the
legally recognizable cause of the harm. A person may
be found not guilty in a criminal case, but can still be
found guilty/ legally liable in a lawsuit.
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Methods of Handling Risk
When managing risk, an insured may choose to
avoid, retain, transfer, share, or reduce risk..
Avoidance
Refrain from engaging in activity that might give
rise to risk, such as not owning or driving a car to
avoid the risk of car accidents.
Retention
Assume responsibility for loss. Retention is the
most common method of handling risk, typically
in the form of deductibles or choosing not to
purchase insurance.
Sharing
Spreading risk among several entities or a large
number of people, such as by insurance companies
or physicians.
Reduction
Decrease the chance for loss by removing or
reducing hazards, such as wearing safety goggles
or installing safety railings around a dangerous
area.
Transfer
Shift the risk for loss from one party to another
either through the purchase of an insurance policy or
issuance of another contractual agreement (e.g., hold
harmless agreement).
Elements of Insurable Risks
To be considered insurable, a risk must:
1. be accidental and due to chance
2. be measurable with respect to value
3. be predictable
4. be one unit in a large enough pool of units
that the law of large numbers allows for the
accurate prediction of loss
5. not be catastrophic in nature
6. generate a rate that is reasonable and
affordable
Pure risks are insurable; speculative risks are not
insurable.
 Adverse Selection
The tendency of persons who present a greater
than average degree of risk for loss to apply for,
or continue insurance to a greater extent than
persons with average or less than average degree
of risk for loss.
Law of Large Numbers
A theory that states it's more likely to predict a
particular outcome as the number of units in a group
increases. For example, an insurer is more likely to
predict the number and types of auto insurance
claims as the number of auto insurance
policyholders increases. Insurance rating is based
on the law of large numbers. Insurance is based on
this theory.
Reinsurance
Insurance sold and purchased between two insurance
companies for the purpose of transferring and sharing
risk, usually catastrophic risk or losses in excess of a
specific amount (e.g., $500,000 or $10,000,000).
Reinsurer
The insurer selling reinsurance to ceding insurers.
Ceding Insurer
The insurer buying reinsurance from a
reinsurer. The ceding insurer issues primary
policies of insurance to individuals and/or
businesses.
Reinsurance Contract or Treaty
Two types of reinsurance contracts are sold:
1. Facultative Reinsurance-The ceding
insurer offers individual risks to the
reinsurer and the reinsurer may choose to
accept or reject each individual risk.
2. Treaty Reinsurance- The reinsurer writes
coverage for one or more lines of insurance
issued by the ceding insurer based on terms
stated in the reinsurance contract. Treaty
reinsurance continues in force unless
canceled and the reinsurer cannot reject
individual risks.
The following types of reinsurance apply primarily
to property and casualty insurance, but are the
subject of all licensing exams:
11 CPMI Professional Development, Inc.
1. Excess of Loss- Reinsurer only pays for
losses that exceed a certain dollar amount
(e.g., $500,000).
2. Proportional- Reinsurer only pays a share
of every reinsured loss (e.g., 90%).
Limits of Liability
The maximum amount the insurer will pay for
loss or damage covered by an insurance policy.
Deductible
The monetary amount an insured must pay before
the insurer will begin making loss payment.
Adeductible is a form of risk-sharing and cost
containment. Most forms of insurance contain
standard deductible amounts (e.g., $500) and the
insured may choose higher or lower deductibles.
As a deductible increases (e.g., the insured pays
for more of the loss), the policy premium
decreases.
Co-insurance
Another cost containment feature in a property
(usually commercial) insurance policy, the co-
insurance clause requires a specified amount of
insurance based on the value of the insured
property. If the insured insures the property for less
than this amount, he or she must share in a
percentage of a loss to the same percent that the
property is under insured at the time of the loss. It
encourages insuring of property to the proper
amount.
Self-Insurance
The concept of making financial preparations to
meet risks by setting aside sufficient funds in
advance to meet estimated losses, including enough
to cover possible losses in excess of those
estimated.
Applicant
An individual who requests insurance from an
insurance company.
Insured
An individual or business who has insurance on his
or her person, property, or business through an
insurer.
Insurer
Another name for an insurance company.
Binder
A binder is a written or oral contract made by an
agent that puts a policy immediately but temporarily
into effect for a specified period of time, from the
time initially bound until accepted or canceled by
the insurance company that includes all the terms of
and endorsements to the policy. The minimum that
an agent needs in order to put a binder into effect is
the insured's promise to pay the premium within a
certain time frame.
All policy terms and conditions are in force until a
policy is issued or coverage is declined by the
insurer on whom the binder was written. Agents
must be careful not to exceed their binding
authority, as the company is liable for the entire risk
until reviewed and accepted or canceled by the
insurer.
Insurable Interest
The concept that insurance can only be purchased
when the applicant has a potential for financial loss,
if the insured person died, or if the insured items
were destroyed or not in their possession. In
property and casualty insurance, insurable interest
must be present at the time of loss as well as at the
time of application. In life insurance, insurable
interest is only required at the time of application.
Negligence
Negligence is conduct that is culpable because it
misses the standard required by law of a reasonable
person in protecting others or the interests of others
against risky or harmful acts of other people. It is:
INSURERS
Types of Insurers
Multi-Line Insurance Companies
Insurers that write more than one line of insurance
Stock Companies
Insurers organized under the laws of the state in
which they are incorporated that are owned by
shareholders who elect officers and directors and
share in profits through stock growth and dividends.
12 CPMI Professional Development, Inc.
1. the failure to do something that a reasonable
person would do OR
2. doing something that a reasonable person
would not do.
Burglary
Breaking and entering (a building, safe, etc.) with
felonious intent and with visible signs of forced
entry--for example, a broken window, jimmied
door, or blown safe. (Burglary, Building. Both start
with B)
Robbery
The taking of the personal property of another by
force or fear of force
Larceny
The taking or removal of another's personal
property with the intent to permanently deprive
them of it. This could be burglary or robbery, but if
property is taken without force, fear of force, or
breaking and entering, it is still larceny. Walking
into someone's house through an unlocked door and
picking up jewelry is an example of larceny.
Theft
The unlawful taking of the property of another,
including burglary, robbery and larceny
Mysterious Disappearance
Personal property is missing, but there is no
provable cause for its disappearance; the property
might have been lost or stolen.
Liability
A legally enforceable debt or obligation.
Mutual Companies
Insurers owned by policyholders who share profits
through dividends and can attend and vote at
company meetings. Mutual insurers are further
divided into Risk Retention Groups and Purchasing
Groups.
Assessment Mutual Insurers
Losses are shared among group members.
Pure Assessment Group--There is no
advance premium; losses are assessed to
each member as they occur.
 Advance Premium Assessment Group--
Premiums are paid at the beginning of each
assessment period and claims are paid from
these premiums. If there are more claims
than premiums paid in, additional
assessments must be levied against each
member. If there is money left at the end of
period the money is returned to the group
members.
Self Insurers
Self insurers manage risk by setting aside a pool of
money to be used if an unexpected loss occurs.
The more predictable and smaller the loss is, the
more likely the risk is to be retained by a self-
insured person or business. Then, if losses occur, the
self-insured person can draw against these funds,
and retain any excess.
Reciprocals (Reciprocal Insurers)
Groups that exchange insurance on each
other.
1. Group members appoint and empower an
attorney-in-fact, binding members together
to insure each other.
2. Members share in any profits through lower
premiums or share in losses by assessment.
3. Insured members are called subscribers.
Risk Retention Groups
A mutual insurer that insures people in the same
profession or business.
Purchasing Groups
A purchasing group is not an insurance company.
Rather, a purchasing group can be any group of
persons with similar or related liability risks who
form an organization, whose purpose is to purchase
commercial liability insurance on a group basis. No
specific requirements are imposed regarding the
legal structure of a purchasing group. In the case of
a trade association, a simple resolution of the board
authorizing the organization's officers to make
arrangement to purchase commercial liability
insurance on a group basis would be sufficient to
establish the purchasing group.
Members of a purchasing group must be in similar
or related businesses which exposes them to similar
or related liability risks.
RRG vs PG
Both risk retention groups (RRGs) and purchasing
13 CPMI Professional Development, Inc.
groups (PGs), require members to be homogeneous,
i.e. engaged in similar businesses or activities that
expose them to similar liabilities.
The primary difference between RRGs and PGs is
that RRGs retain risk while PGs do not. PGs
purchase insurance from an insurer, which issues
the policies and serves as the risk bearer. RRGs, as
insurers, issue policies to their members and bear
risk. Another key difference between the two
entities is that RRGs typically require members to
capitalize the company whereas PGs require no
capital.
Fraternal Benefit Societies (Self-Insurers)
Membership is based on religious, ethnic, or
national lines, and noted primarily for social and
charitable functions. Fraternal Benefit Societies
are societies, orders, or supreme lodges, with no
capital stock that may or may not be incorporated.
These fraternals:
1. are conducted solely for the benefit of
members and their beneficiaries, and are not
for profit.
2. operate on a lodge system with ritualistic
form of work.
3. have a representative form of government.
4. provide benefits in accordance with their
charter.
5. started offering life insurance for the benefit
of their poorer members on an assessment
basis but have expanded to operate the same
as other insurers today, though they still
offer insurance only to members or their
families.
Syndicate Insurers/Lloyd's Associations
Syndicate insurers are not true insurance companies.
1. They provide a place for members to meet
and transact the business of insurance
individually or as groups through a
syndicate manager.
2. They provide assistance in gathering
underwriting information and handling
claims and disputes among syndicate
members.
3. Members are individually and wholly liable
for all risks they accept, with no limitations
on liability. This lack of liability limits is
the primary reason syndicates are not
widespread today.
4. Example - Lloyd's of London
Private Versus Government Insurers
State or Federal government sometimes cover
certain types of insurance that private insurers
cannot or will not insure. Insurers in each state are
required to participate in shared or involuntary
markets. These markets provide coverage for high-
risk insurance applicants that do not meet normal
underwriting standards.
Some states require that these high-risk applicants
be assigned to individual insurers on a
predetermined basis while others require that losses
from these individuals be shared.
1. Property insurance FAIR plans provide
insurance to property owners in inner-city
and high risk areas who are unable to obtain
insurance through normal market channels
because of property location or other
situations over which they have no control.
If turned down in the normal market, the
property owner applies for insurance
through the state's FAIR plan that follows
its own guidelines to insure the property.
2. In casualty insurance Assigned Risk (AIP)
plans work similarly to the property FAIR
plans, but for auto insurance risks that are
difficult to obtain coverage for in the open
market. See more information on these
plans later in this book.
3. Examples of federal government insurance
include Social Security, Medicare, flood
insurance, and federal crop and crime
insurance. State governments sometimes
offer competitive funds that compete with
private insurers, or monopolistic funds that
will not allow insurers to compete in certain
areas. One such example is that some states
(North Dakota, Ohio, Washington, and
Wyoming) provide Workers' Compensation
insurance benefits.
Admitted vs Non-admitted
Insurers
Admitted Insurer/ Authorized Insurer
An insurer authorized by a state's insurance
department to transact business in that state.
Non-Admitted Insurer/ Non-authorized
Insurer
Insurance companies not authorized to transact
business in a state because they either didn't seek
admission to the state or failed to comply with state
14 CPMI Professional Development, Inc.
requirements.
Domestic, Foreign, and Alien
Insurers
Domestic Insurer
Insurers that transact business in the state where
they are chartered.
Foreign Insurer
An insurer transacting business in a state but that is
chartered under the laws of a different state or one
of the U.S. territories.
Alien Insurer
An insurer organized under the laws of a
jurisdiction outside of the United States or its
territories.
Financial Status (Independent
Rating Services)
Independent evaluation services provide
information on companies such as financial
strength, management caliber, and efficiency of
operation.
1. They publish guides which analyze almost
all property and liability business insurers.
2. Review underwriting results, management,
adequacy of reserves for liabilities that are
not discharged, adequacy of policyholder
reserves to absorb shock losses, and
soundness of investments.
If properly used, these rating services help avoid
delinquent insurance companies. Ratings should be
checked over a period of years to verify trends for
the companies. A.M. Best and Weiss Research are
two companies that have guides available through
most public libraries.
Marketing (Distribution Systems)
Types of Agents/Marketing Systems
Exclusive/Captive Agents or Producers
Agents appointed by an insurer to represent the
company by selling and servicing policies on its
behalf, representing only one company.
Independent Agents or Brokers
Agents that represent several insurers and can,
therefore, offer various premiums to the customer.
Nonresident Agent
An agent authorized to write business in a state
other than the one in which he or she lives.
Direct Writer
An insurer that deals directly with the insured
through a salaried representative or
PRODUCERS AND GENERAL RULES OF AGENCY
Insurer as Principal
Insurance companies are principals of the insurance
agent, which means that the insurer empowers the
agent to act as a representative of the company.
Legally, the acts of the agent are considered to be
the acts of the principal, so the agents' acts extend
the insurance company's liability.
Producer/Insurer Relationship
Agency Agreement/ Contract
The producer:
1. is first and foremost the representative of
the insurance company and has an ethical
obligation to follow the rules of the insurer,
to submit applications only for those risks
that the insurer deems appropriate, and to
service the policies of company customers.
He or she is paid commission or salary by
the company and is given authority to
represent the company in conducting
business on the company's behalf.
2. acts as the representative go-between for
the company and the insured, with primary
responsibility to the company as the
principal, while treating the customer in a
fair and ethical manner.
3. provides correct information to the
customer about policy coverages.
4. processes any requests for or cancellations
of coverage in a timely fashion.
5. has no authority beyond that which the
insurer gives him or her.
Difference between an Insurance Agent
and a Broker
Superficially, an insurance agent and a broker look
identical as both of them are selling insurance
15 CPMI Professional Development, Inc.
captive/exclusive agent rather than through
independent brokers.
Direct Mail/Direct Response
Policies are marketed from the company's home
office rather than through agents. Marketing is
done through direct mail, Internet, newspapers or
magazines and radio or TV.
policies. The main difference between the two
entities lies in the relation these persons have with
the insurer and the insured. An insurance agent is
designated by the insurance company to sell its
products by convincing people to buy the
company's policies, whereas a broker works
independently and matches the needs of a client
with the products available with any of the
insurance companies. Both need a license to carry
out their business in a state and both get
commission from the company.
Authority & Powers of Producers
Law of Agency
Any act on the part of an agent of the company is
the same as if the company itself did the act. An
agent represents the company through several types
of authority or directives:
Express
Authority expressly given the producer, either orally
or in writing in his contract. Examples: the
countersigning and delivering of policies. Express
directive clauses are such things as scale of
commissions, ownership of contracts sold, and
contract cancellation procedures.
Implied
The doctrine of ostensible authority gives agents
unwritten authority to perform incidental acts that
the public assumes the agent to have.
Example-Exclusive Property and Casualty agents
can bind insurance coverage. If the agent binds a
particular risk, the company is bound to that risk
and must pay for any losses until it cancels the
contract.
Apparent
Authority neither expressly given nor implied, but
exists because the agent has used it in the past
without the insurer stopping him or her from doing
so, or it is authority that a reasonable person would
assume an agent to have. If the agent has paid
minor claims in the past and been reimbursed by the
insurer, it is apparent he or she has the authority to
do so.
CONTRACTS
Elements of a Legal Contract
There are four principle elements that must be in
every legal contract:
1- Offer and Acceptance
Agreement
An insurance policy is the written statement of the
terms of the contract. There must be both an offer
and an acceptance:
Offer-the applicant submits an application along
with the correct premium
Acceptance-the insurer issues the policy.
If the applicant does not submit money with the
application, it is not an offer, but it is an invitation
to the insurer to make an offer, and the agent cannot
bind coverage.
2- Consideration (Exchange of
Consideration)
The applicant's consideration is the premium, and
the insurer's consideration is the promise to
indemnify the insured in the event of a loss.
3- Competent parties
All parties concerned must have legal capacity to
enter into a contract. This is probably best shown
by defining those who do not have legal capacity to
enter into a contract. This includes:
1. minors
2. those legally declared incompetent
3. people under the influence of drugs or
alcohol.
16 CPMI Professional Development, Inc.
Responsibilities to the
Applicant/Insured
For risks covered by the policy, the insurer must pay
all sums up to the policy limits that the insured
becomes legally liable to pay; in other words, the
insurer pays the lower of the claim (loss) or the
policy limits. Deductibles will be applied to any
property claims, but there is no deductible for
medical or liability claims.
In the case of minors, the insurer may be required to
uphold the terms of the contract while minors may
not be.
4- Legal purpose
The insurance policy owner must have an insurable
interest in the property or person being insured.
Insurable interest is defined as having a financial
interest wherein the insured could lose financial
position if the property were damaged or destroyed,
or if the person was injured or died.
Distinct Characteristics of an
Insurance Contract
A contract is a binding agreement between two or
more parties, legally enforceable to do certain
things. In an insurance contract, the insured agrees
to pay a monetary premium and abide by certain
agreements in exchange for the insurer agreeing to
indemnify the insured in case of loss.
Two Party Contracts
Insurance contracts are generally between two
parties- the insured and the insurer. The insured
suffers a loss of property, health, or life or is liable
for someone else's losses. The insurer agrees to
indemnify the insured for such financial loss.
Insurers may pay money to a third party to whom
the insured is liable (the insured has liability
because they caused financial damage to another, or
owe compensation to for services rendered to us-
repair of our property or health).
Third Party Contracts
Sometimes, a third-party agreement is created to
indicate that the performance of the contract will
result in a benefit to a person that did not sign the
contact. Benefits to third parties are usually
expected, and left out of contracts, unless one of the
signers wants to designate a specific benefit to a
specific third-party. To be able to enforce the
contract, a third-party must be able to prove that the
contract was drawn for it's benefit. Otherwise, the
benefit is considered incidental and the contract is
only enforceable by the original signers.
Banks and other mortgagors are common third
parties because many contracts involve payment on
property for which the mortgagor has a financial
interest because of a loan.
Contract of Adhesion
Only one party to the contract, the insurer, prepares
the contract and submits it to the other party, the
insured, for acceptance. The insured cannot make
any changes to the contract.
Aleatory Contract
Unequal amounts of money are exchanged. The
premium that the insured pays is less than the
potential benefit he or she will receive in the event
of a loss.
Personal Contract
Insurance policies are personal contracts. They
cover the insurable interest of the individual insured
and cannot be transferred or assigned to another
individual-the exception is life insurance.
Unilateral Contract
Only one party is legally bound to perform any
duties once premium is paid. In an insurance
contract, only the insurer makes any legally
enforceable promise. The insured does not make a
promise but pays a premium, which constitutes his
or her part of the consideration.
Conditional Contract
Both parties must perform certain duties to make
the agreement enforceable. The insured pays
premiums and follows certain policy conditions.
The insurer pays claims according to policy terms.
17 CPMI Professional Development, Inc.
Legal Interpretations Affecting
Contracts
Ambiguities in a Contract of Adhesion
Any doubt or ambiguity found in an insurance
policy will be found in favor of the party that did
not draw up the contract-the insured.
Reasonable Expectations
The reasonable expectations of policy owners or
beneficiaries will be honored even though the strict
terms of the policy do not support these
expectations
Indemnity
The concept of restoring someone to the same
financial position they were in before a loss
occurred. Compensating or reimbursing someone
for a suffered loss.
Utmost Good Faith
Applicants and insureds are expected to make a full,
fair and honest disclosure of facts. Insurers are
expected to promptly indemnify the insured in the
event of loss according to the contract.
Representations/Misrepresentations
Representations are statements made by one party
that are believed to be true. The insured's
misrepresentation will not affect the insurance
contract or policy unless it affects the conditions
under which the policy would be issued or not.
Therefore, it is material to the risk. An agent's
misrepresentation, whether intended or not, is more
likely to void a policy. For example, an agent may
falsely represent that certain coverage is contained
in the policy, when in fact it is not.
Warranties
The insured's guarantee that facts as stated are
correct in reference to the risk, or that specified
conditions will be fulfilled to maintain the contract.
Property Insurance Example:
The insured states there is a sprinkler system in the
building and that it will be kept in working
condition.
Concealment
The willful failure to disclose facts that are material
to the risk. An applicant's concealment of
information from the insurance company could
affect the insurer's decision whether or not to insure Unfair Marketing Practices
the property and could void the policy.

Casualty Insurance Example: Boycotting

To boycott is to stop buying or using the goods or
A women says she is divorced or legally separated
services of a certain company or country as a
from her husband in order to get auto insurance.
protest. Boycotting in insurance is to stop buying
She actually is fully married and living with him,
from a particular business to force them to buy
but he lost his driver's license due to a DUI and is
insurance from a particular source.
not insurable.

Fraud Intimidation
To force into or deter from buying insurance by
Deceit, intentional misrepresentation, or the
inducing fear.
concealment of material facts with the intention of
causing injury to another party.
Misappropriation of Funds
Waiver and Estoppel Misappropriation of funds means the intentional,
illegal use of the funds of another person for one's
Waiver own use or other unauthorized purpose. It is a
The voluntary abandonment of a known or legal punishable offense.
right or advantage.

Estoppel Rebating
Returning a portion of the premium or the
The concept that, once a fact has been admitted to
agent's/broker's commission on the premium to the
be true by a previous action, it can no longer be
insured or other inducements to place business with
denied to be true.
a specific insurer.
Fiduciary
An individual who holds a position of public trust
Redlining
Redlining is a discriminatory practice in which
and confidence. Insurance agents are fiduciaries to
insurance companies refuse or limit insurance
both the companies they represent and their client.
within certain geographic areas, especially inner-
As fiduciaries, agents are expected to be
city neighborhoods.
professional and to act ethically.

18 CPMI Professional Development, Inc.

 SECTION I - GENERAL INSURANCE REVIEW QUESTIONS
1. Which of the following explains that any 3. An insurance company which shares
act by an insurance agent is the same as if dividends with policyholders is called a:
the insurance company did the act? a) Syndicate insurer.
a) Representative insurance b) Stock insurer.
b) Fraternal insurer c) Mutual insurer.
c) Domestic insurer d) Miracle.
d) Law of agency
4. An insurer that can only sell insurance to its
2. Frank sold his car to Jill but did not cancel members or their families is a:
his auto insurance policy. Jill had an a) Mutual insurer.
accident one month later and Frank reported b) Fraternal Benefit Society.
the accident to his insurance company. c) Domestic insurer.
Frank was not able to collect money for d) Reinsurer.
damages to the car, even though his policy
was still in force because
a) Frank no longer had insurable interest.
b) Frank was not the individual who had
the accident.
c) Frank misrepresented that he still
owned the vehicle by keeping the
policy in force.
d) The insurance company did not follow
proper claims procedures.

19 CPMI Professional Development, Inc.

 Section II - Property Insurance Basics
PRINCIPLES AND CONCEPTS
Insurable Interest
The insurance applicant must have a potential for
financial loss if some person or entity suffers
damages as the result of using the insured's
property, goods, or services. In Property and
Casualty insurance, insurable interest must be
present at the time of both application and loss. In
Life insurance, insurable interest is only required at
the time of application.
Underwriting
Function
Once an insurance application is received by the
insurance company, underwriters review the
application to verify information and to decide if
this risk is one acceptable by the company.
Sources of Underwriting Information
1. The application
2. The agent report
3. Credit Reports
4. Prior insurance
Rating Types
There are several categories under which an
application can fall:
Acceptable with standard rates-The
insurance policy will be issued as applied
for, subject to full premium payments.
Acceptable with substandard rates or
with exclusions-The application will be
issued, but the insured must sign an
endorsement showing that he or she accepts
the changes and/or increased premium and
must pay the increased premium to keep the
policy in force.
Unacceptable and denied coverage-If the
insurer denies coverage to an applicant, the
insurer must give a detailed, written
explanation as to why the coverage was
denied. Any paid/unearned premium is
returned. The insured must seek insurance
elsewhere, either through a high risk insurer
or through state FAIR plans.
20 CPMI Professional Development, Inc.
Loss ratio
An insurer's loss ratio is one way of measuring the
insurer's profitability. It takes claim expenses and
compares them to premiums.
Loss (incurred losses + loss adjustment expenses)
=
Ratio earned premiums
The lower the ratio, the better the claims experience
of the insurer and the more profitable the company.
This ratio does not include profits the insurer makes
from interest on collected premiums.
Premium rates generally need to be submitted to or
approved by state insurance departments before
they may be used in sales.
Rates
Types of Rates
Judgment Rating
Premium is determined without manuals or tables.
Rather, the underwriter evaluates the individual risk
to determine the probability of loss, the extent of
possible loss, and the premium that would need to
be charged to cover possible claims, other expenses,
and projected profits.
Manual Rating
This method separates risks into category groupings
or classes. The agent/underwriter decides the class
into which the risk would fit and then consults a
rating manual. The printed manual rate is on a per
unit of insurance, such as per $1,000 of coverage.
The underwriter can then multiply the rate by the
required number of units for the specific risk to
determine the proper premium to charge.
Merit Rating
Merit rating generally modifies a manual rating by
taking particular aspects of the individual risk into
account. Experience Rating, for instance, takes the
particular risk's past loss history (usually the past
three years) and compares it to an average claim
experience for similar risks. If the risk has a poorer
loss history the premium will be adjusted upward.
If there is a better than average loss history the
premium will be adjusted downward.
Loss Costs
Loss costs represent the portions of insurance rates
used to cover claims and the costs of adjusting
claims. Insurers determine rates by estimating their
future loss costs and adding a provision for
expenses, profit, and other contingencies.
Components/Premium Determination
Factors taken into consideration when determining
premium rates include claims costs and related
expenses, insurer administrative expenses,
investment income (from invested premiums and
other income), producer commissions, and insurer
profits.
Hazards
The following are types of hazards, or conditions
that increase risk or the chance of a loss occurring:
Physical
Material or structural problems such as damaged
steps or worn auto tires.
Moral
The insured's habits, such as dishonesty or criminal
activity. Moral hazard occurs when the party with
more information about its actions or intentions has
a tendency or incentive to behave inappropriately
from the perspective of the party with less
information.
Morale
The insured's attitude/lack of concern about safety
and liability issues because of the existence of
insurance coverage, such as a business not having or
following safety policies, or allowing people with
bad driving records to drive company owned
vehicles because they know their insurance will
cover and losses.
Legal
Hazards arising from changes in law while the
policy is in force, requiring the insurer to add
coverages that were not included before.
Causes of Loss (Perils)
The cause of loss is the event insured against.
Examples include: fire, lightning, and theft. Perils
21 CPMI Professional Development, Inc.
can either be specifically named in the policy, or
included unless they are specifically excluded from
coverage.
Named Perils vs. Open Perils
Named Peril Policies
These policies protect only against perils
specifically listed in the policy.
Open Peril Policies
Also called Special Peril policies, these policies
have much broader coverages. They protect against
all physical loss risks, except perils specifically
limited or excluded by the policy.
Direct and Indirect Losses
Direct Loss
A loss in which the covered peril is the immediate
or proximate (dominant or first) cause of damage to
property, such as hail damage to the roof of a house.
After hail has damaged the roof, water from the rain
was able to damage property inside.
Consequential or Indirect Losses
A loss in which the covered peril is not the direct
cause of damage. If a restaurant suffers a fire, for
instance, the fire is the direct cause of the loss. The
loss of income from the business while the
restaurant is closed for repairs is an indirect loss.
Liability
Absolute/Strict Liability
A legal doctrine that states that an individual can be
held liable even if negligence does not exist or
cannot be proven. The injured party may collect
damages even though there is nothing legally wrong
with what the other person did or the manner in
which they did it. Examples:
1. Strict Liability: Workers' Compensation.
2. Absolute Liability: Especially dangerous
activities. Examples would include using
dynamite, or owning a pet rattle snake.
Vicarious Liability
Vicarious liability arises out of imputed negligence,
in which one individual becomes liable for the
negligent behavior of another. Employers are
generally held liable for the negligent acts of
employees while those employees are acting within
the scope of their employment. Insurance
companies, as principals, are liable for the negligent
acts of their agents.
Proximate Cause
An event that, in natural and sequential order, is
responsible for a loss. It is an event considered to be
a primary cause of that loss.
In Property insurance, rain coming in an open
window would not be covered. However, if
lightning struck, breaking the window, the lightning
would be the proximate cause for rain coming in the
window, and the loss would be covered.
In Casualty (Liability) insurance, consider that
someone runs their truck into the wall, causing a
brick to shake loose and fall, and it knocks a
pedestrian in the head. The brick is the actual cause
of loss, but the driver who lost control of the truck
could be negligent as the proximate cause.
Blanket vs. Specific Insurance
An insurance contract covers a particular type of
risk, but may be open or closed as to the people or
objects covered. A specific policy would cover only
those objects or perils named in the policy. A
blanket policy would be one that covers a class of
objects or perils. A property blanket policy, for
instance, might be one that covers all apartment
buildings owned by the insured, while a casualty
blanket policy would cover the liability associated
with those apartments. A blanket health policy
might cover all students at a particular school or all
members of a sport team.
Basic Types of Construction
There are two types of property covered by Property
Insurance policies:
1. real property (land and buildings)
2. personal property (belongings such as
clothes and furniture).
Basic Types of Construction
Property insurance agents must know the six basic
types of construction when determining the value to
which the property should be insured. In general,
these methods include:
1. Wood Frame (most common construction
for residences in the U.S.)
22 CPMI Professional Development, Inc.
2. Masonry (brick)
3. Reinforced Concrete (multi-family units)
4. Structured Steel
5. Steel Frame (garages & outbuildings,
especially around farms)
6. Prefabricated Structures (most commonly
used for residences)
Classifications of Construction
1. Framed Construction- buildings with
floors, walls, and roofs constructed of
combustible material(s).
2. Joisted Masonry Construction- buildings
with exterior walls of masonry or fire-
resistive construction rated for not less than
one hour, and with combustible floors and
roofs.
3. Non-combustible Construction- floors,
walls, roofs, and building supports must be
made of non-combustible or slow-burning
materials.
4. Masonry Non-combustible Construction-
buildings with fire-resistive masonry walls,
and non-combustible or slow-burning floors
and roofs.
5. Modified Fire-resistive Construction-
buildings with exterior bearing walls and
load-bearing portions of exterior walls
made of masonry or non-combustible
materials (exterior non-bearing walls may
be slow-burning, combustible, or have no
fire-resistive rating).
6. Fire-Resistive Construction
solid masonry, including reinforced
concrete not less than four inches thick.
hollow masonry not less than 12 inches
thick.
hollow masonry less than 12 inches
thick, but not less than eight inches
thick with a listed fire-resistance rating
of not less than two hours.
assemblies with not less than a two-
hour fire-resistance rating.
Loss Valuation
Property may be valued differently by different
individuals.
Sentimental Value
Someone might have strong emotional ties to
property, such as an heirloom or an old car.
Resale Value
The price that the individual could get for the
property if it were sold
Actual Cash Value
The ACV of property is calculated as the
replacement cost at the time of loss minus
depreciation.
Replacement Cost
The cost to rebuild or replace property with
materials of like kind and quality, and at the same
location.
Functional Replacement Cost
This is the cost to repair or replace damaged
property with less expensive but functionally
equivalent materials. An example would be custom
woodwork that is replaced with standard woodwork.
Guaranteed Replacement Cost
The actual cost to rebuild or replace the property
after a loss, even if that cost is more than the stated
value insurance amount.
Market Value
The price property would likely fetch if sold on the
market. A home in a small, remote town would
have a similar price to one in a larger city to rebuild
or replace (Replacement Cost). However, if the
house were sold (Market Value), the price might be
considerably less in the small town because of:
1. lower land and property values
2. fewer potential buyers for a property in a
small town.
Agreed Value
A provision that specifies a certain value that will
satisfy policy co-insurance requirements. The
insured cannot be assessed a co-insurance penalty as
long as the policy limit is at least the agreed value
amount.
Stated Amount
An agreed upon policy amount that is paid in the
event of a total loss, regardless of the property's
actual value.
Valued Policy
With a valued policy, in the event of a total loss, the
entire face amount is payable without regard for
depreciation. Common with Ocean Marine policies,
and required coverage in many states.
Limit of Liability
The maximum amount an insurance company will
pay to protect the insured under a given policy. The
insurer will pay the amount of the loss or the limit
of coverage under the policy, whichever is less.
Liability coverage is NOT subject to deductibles.
Fire Legal Liability
A form of liability insurance that covers damage to
leased or rented property caused by fire or other
specified perils. It may be used in Personal or
Commercial Lines rental policies.

POLICY STRUCTURE
(D-I-C-E)
Declarations Who?
What?
Identifies both the insured's and the insurer's name & address.
Identifies both the real and the personal property insured.
and Where? Identifies the territory covered by the policy.
Definitions When? Identifies the policy period (inception and expiration dates & times.)
How much? The amount of insurance coverage and the premium.
Insuring Summarizes covered risks, additional or supplementary coverages, and the
Agreement or insurer's responsibility to indemnify against losses suffered as a result of the perils.
Clause
Lists the insured's responsibilities both at the time of application (truthful
representations in the application and payment of premium) as well as at the time
Conditions of loss (notice of and proof of loss, which is a sworn statement made by an insured
verifying the amount, date, and cause of a loss).

23 CPMI Professional Development, Inc.

 Exclusions & Lists the property, perils, and other hazards not covered by the policy or which
Endorsements have a reduction of coverage in the policy.

Additional/Supplementary 1. Legal fees for defending the insured if a

lawsuit goes to trial
Coverage 2. Claims expense
3. First aid expense for others
Supplementary payments that the insurer will pay 4. Damage to property or person of others
over and beyond the policy's liability limits include when not legally liable
the following: 5. Loss assessment coverage.

COMMON POLICY PROVISIONS

Insureds-Named, First Named,
Additional
An insured person is:
1. Any member of the insured household who
is a relative or is under 21 years of age.
2. A child or parent living with the insured is
included, regardless of age.
3. Other members of the insured household
who are under 21 years of age.
4. The definition of Insured has been
expanded under HO to include other
persons under the age of 21 and in your care
or the care of a resident of your household
who is your relative.
Named Insured
The person(s) listed as an insured in the declarations
page.
First Named Insured
The first insured listed and the person to whom the
insurer sends correspondence such as renewal
notices, policy changes.
Policy Territory
In personal lines, the policy territory is the location
of the insured property and/or the area in which the
policy will cover liability issues.
In commercial lines, the policy territory is a list of
states in which the insured does business and a list
of other states in which the insured may potentially
do business in the future, except for any of the four
monopolistic fund states of North Dakota, Ohio,
Washington, and Wyoming.
Deductibles
Deductibles are a type of cost containment tool
wherein the insured pays for the first portion of
costs, and the insurer pays the balance, up to policy
limits. When the insured has to pay something
upfront, he/she is less likely to submit a claim, or
there will be no claim to submit because the
deductible covers the loss. In this way, the insurer
is only paying for bigger claims, which do not
happen as often.

Additional Insured Other Insurance

An individual or entity, other than the named
insured, who qualifies as an insured under the
policy. This is especially the case if there is a
specific interest involved, such as a mortgage or a
business arrangement.
Non-concurrency
Happens when two or more policies do not cover a
risk in the same way at the same time. This can
create coverage gaps for the insured.

Policy Period Primary and Excess

Primary Insurance
Loss must occur between the policy inception and The main, or underlying, coverage on a risk.
cancellation dates.

24 CPMI Professional Development, Inc.

Excess Insurance
Coverage that starts when the underlying policy's
coverage ends, also known as an umbrella policy,
which will be covered later.
Handling of Claims- Pro-Rata vs.
Contribution by Equal Shares
When there are two or more liability policies on a
given risk, depending on the type of policy, claims
are handled differently than on a property policy.
Liability insurance can be primary or excess
insurance.
Pro-rata
If a loss occurs that is covered by more than one
insurance policy that was purchased by the insured,
each policy pays a portion of the loss that is
proportional to the amount of that policy over the
total amount of all policies for the loss- each policy
pays its pro rata share.
Example: Pro Rata Liability
The insured has a building worth $1million, but, for
underwriting reasons, the maximum amount he can
purchase from 3 insurance companies is $600,000,
$300,000, and $100,000. He purchases the three
policies with the maximum limits. If he suffers a
$200,000 loss, then the first company will pay 60%
of the loss, the second 30%, and the third 10%.
Contribution by Equal Shares
Some policies handle multiple coverage through
payments of equal shares rather than pro rata
payments. Each company pays an equal amount
until the loss is covered, or the policy limit of any
policy is reached. If one or more of the policy limits
is reached, then the equal share principle applies to
the remaining insurers. As each policy limit is
reached, the remaining insurers make equal
payments with the remaining amount of uncovered
loss until the loss is covered or all policies are
maxed out.
Example: Contribution by Equal Shares
Consider the same facts as in the pro rata example.
a) If there is a $150,000 loss, each company
pays $50,000 for a total of $150,000.
b) If the loss was $400,000, each company
pays $100,000, and the 2 with higher
coverage pay an additional $50,000 for a
total of $400,000.
c) If the loss was $800,000, then the low-limit
company pays its policy limit of $100,000,
25 CPMI Professional Development, Inc.
the next company pays its policy limit of
$300,000, and the remaining insurance
company pays the remaining $400,000 to
cover the loss.
Policy Limits
The maximum lifetime benefit of an insurance
policy.
Restoration/Non-reduction of
Limits
Limits of liability will return to the insured amount
showing on the Declarations Sheet after a property
claim has been settled. There is no reduction in
value because a claim has been paid.
Coinsurance
A clause which requires the insured to keep
insurance equal to or greater than the stipulated
percentage of full value, or they will not be able to
collect the partial losses in full. If the insurance is
not as high as required, the amount payable is
calculated as follows:
(Amount of insurance carried / Amount of insurance
required) x Amount of loss = Amount Payable
Examples:
1. A $10,000 loss for Property valued at
$100,000 with an 80% co-insurance
requirement and insured for $80,000:
$80,000/$80,000 x $10,000 = $10,000
2. A $10,000 loss for Property valued at
$100,000 with an 80% co-insurance
requirement and insured for $60,000:
$60,000/$80,000 x $10,000 = $7,500
Vacancy or Unoccupancy
Coverage is canceled if the building is vacant or
unoccupied. Such buildings can have a greatly
increased risk of loss by becoming an attractive
nuisance in the neighborhood, meaning that it
would attract vandals or other groups who may
use the unwatched or abandoned property for illegal
purposes.
1. Unoccupancy: Buildings which have no
residents or active business for more than
 60 days are considered unoccupied.
2. Vacancy: Buildings that are both
unoccupied and have no personal/business
property in them for more than 60 days are
considered vacant.
Named Insured Provisions
Only the first named insured is responsible for
interactions with the insurance company, including
the making of policy changes, receiving returned
premium, and giving or receiving notice of
cancellation.
Insured's Duties after Loss (Claims
Handling)
1. Fully cooperate with the insurer's
investigation, settlement, or defense of a
claim.
2. Provide proof of loss and take reasonable
steps to prevent further loss.
3. A third party claimant must make a claim
against the insured. The insured must then
submit the claim to his insurer. An insurer
is not liable to a third party claimant and
cannot be sued directly by the claimant
unless the insurer agrees its insured is liable
and refuses to pay, or if the insurer is not
making payments when ordered to do so by
a court of law.
Appraisal & Arbitration
In the event of disagreement of the insurer's
handling of a claim, the insured and the insurer may
each select an appraiser, and if there is still
disagreement, the two appraisers select an umpire
appraiser.
Assignment
An assignment is the transfer of a policy or some of
the policy's rights from the insured to another entity.
The Assignment Clause states that the policy cannot
be assigned or transferred to another without written
authorization, signed by an officer (not the agent) of
the insurance company.
Abandonment
Property cannot be abandoned to the insurer. The
insured cannot declare something a total loss and
turn it over to the insurer and demand payment
without the insurer's consent.
26 CPMI Professional Development, Inc.
Insurer Provisions
Duty to Defend
The insurer has the responsibility to defend the
insured against lawsuits or liability claims.
1. The insured will only be defended up to the
limits of the policy.
2. The only time the insurer cannot settle a
lawsuit without the permission of the
insured is when the insured is covered
under an Errors and Omissions policy.
Liberalization Clause
If the insurer changes the same type of policy the
insured owns in any way, providing for more
coverage without additional premium, the insured's
original policy will be extended for those coverages
without need for additional forms or premium.
Subrogation
The insurer has the right to pursue legal action in its
own name or the name of a policy owner against a
third party who is liable for a loss that has been paid
by the insurer. The insured must assign rights to
make a claim against the other party to the insurer
upon the insurer's handling of the claim settlement.
This prevents insured from collecting from both
his/her insurer and a third party, so he/she does not
profit from his insurance.
Salvage
The insurer may pay either the cost to repair or
replace the damaged vehicle or property, or the
actual cash value. Any replaced personal property
then belongs to the insurer.
If a valuable vase is declared a loss as the result of a
fire, the insurer has the right to take possession of
the vase after paying its full value minus any
deductible to the insured. The insurer then has the
right to sell the vase for whatever it can and keep
the proceeds of such sale.
Claim Settlement Options
The insurer may pay either:
1. the cost to repair the damaged property
2. the cost to replace the damaged property
3. or the Actual Cash Value
 Third-Party Provisions
Standard Mortgagee Clause
A provision in a property insurance policy that gives
a mortgage holder (such as a bank) three rights:
1. The right to be given 10 days notice if
either the insured or the insurer cancels the
policy.
2. Claims settlement will be made directly to
the mortgagee in the event of a loss.
3. The right to provide proof of loss so the
mortgagee can be compensated for damages
if the insured does not provide such proof in
the event of a loss.
PERSONAL PROPERTY LINES
There are two major types of personal property
policy forms, also called Cause of Loss forms:
1. Dwelling forms
2. Homeowners forms.
STATE LAWS, REGULATIONS AND REQUIRED PROVISIONS
State Property and Casualty
Insurance Guaranty Association
Insolvency
Unable to pay debts as they arise. A company in
bankruptcy.
After an insurer becomes insolvent, the state finds
funds to guarantee that the insureds' claims will be
covered. All of the insurance companies in the state
will provide their share of the money to cover the
claims of the insolvent insurer. All states, except for
New York, collect the funds on a post-insolvency
basis.
Standard Fire Policy
The Standard Fire policy is the most basic of all
property insurance policies.
Initially drafted in New York in 1918, it was
amended in 1943 and has only 165 lines
27 CPMI Professional Development, Inc.
Loss Payable Clause
A loss payee listed in the Declarations page is
considered an insured with respect to the property
he/she is linked to. The Loss Payee will be notified
in writing if the insured cancels or non-renews the
policy.
No Benefit To the Bailee
This provision does not allow the bailee to receive
payment for coverage to insured property while it is
being held, stored, repaired or moved for a fee by
the bailee. This prevents the bailee from benefiting
from the insured's coverage on the property.
Each of these is further broken down into Basic,
Broad, and Special (All-Risk) policies. These
divisions each include a set of coverages and
exclusions that are intrinsic to that type- whether the
policy is a Dwelling or Homeowners Policy.
describing the coverage.
It was generally replaced by simplified
language policies in the 1980s.
When still used, other forms must
accompany it in order to make it a complete
modern policy.
Covered perils include:
fire
lightning
removal of property after a fire to
protect it from further damage
Cancellation and Non-renewal
The insured may cancel the policy by:
1. Returning the policy to the insurer or to the
insurer's representative.
2. Notifying the insurer in writing as to when
the cancellation is to take effect.
The insurance company may cancel the policy by
written notice delivered to the insured or to the
insured's representative for the following reasons:
1. Non-payment of premium (notification
must be at least 10 days before
cancellation).
2. Any reason, within 60 days of application.
If in effect for more than 30 days, the policy
may be canceled on its anniversary date,
with 31 days written notice.
Or at any time with 31 days written notice for:
1. Discovery of grossly negligent acts or
omissions by the insured that increase the
risk of the hazard insured against.
2. Operational changes in the insured's
business or the covered risk.
3. Physical changes in the insured's property
which result in its becoming uninsurable.
4. The insured being convicted of a crime that
increases the hazard insured against.
5. Discovery of fraud in obtaining the policy
or pursuing a claim.
Non-Renewal or Conditional Renewal
The insurer may non-renew or conditionally renew
with a reduction of limits or with elimination of
some coverages by giving a 30-day written notice.
Example: An insurer decides it will no longer offer
sewer or sump pump back-up coverage, or that it
will change the way it will cover damage caused by
an earthquake.
Private Residence
The notification for canceling homeowner policies
requires more advance notice because it is a private
residence and the insured's belongings need to be
covered. Depending on the state, the notice must be
sent 45 days before the effective date of
cancellation or non-renewal.
Commercial
Because the notification is being sent to a
corporation instead of an individual, notice on a
commercial policy must be sent 60 days before the
effective date of the cancellation or non-renewal.
The number of days varies by state.
Basic Property Insurance-Death of
Named Insured
In the event of the death of the named insured,
coverage still exists for:
1. The legal representative of the deceased
2. The spouse
28 CPMI Professional Development, Inc.
3. Relatives residing in the property
4. Any person having custody of the property
until a legal representative is appointed
Negligence
Elements of a Negligent Act
Negligence is a concept that has been developed
through common law. The basic premise of
common law is that people have an obligation or
legal duty to behave in a reasonable and prudent
fashion. This is called the Reasonable Person Rule.
Failure to act in this manner constitutes negligence.
If this negligence leads to the injury of another or to
the damage of another's property, the negligent
party may be held liable for the damage. In order
for legal liability to exist it must be established that:
1. negligence occurred,
2. that there was actual damage or loss
3. that the negligence was the proximate cause
of the loss
A person cannot be held legally liable unless he or
she had a duty to act and failed to do so, or failed to
act correctly.
Negligence is the failure to take reasonable care,
precaution, or action to lessen risk exposure.
Negligence may be the result of either omitted acts
(such as failure to shut a window before leaving the
house) or committed acts (playing catch with your
child in front of a sliding glass door).
Four Basic Categories of Individuals that
Cannot Be Held Negligent
1. Infants
2. The mentally ill
3. Governmental bodies
4. Charitable institutions
However, recent legislation and court decisions
have held that the government can be liable to the
same extent as private individuals and charitable
institutions are to be treated in the same manner as
for-profit businesses.
Defenses Against Negligence
Negligent behavior doesn't necessarily mean legal
liability. Certain defenses can free the person from
legal liability in spite of negligent behavior, or
prevents recovery for possible injuries caused by
negligence:
 1. Assumption of Risk A person who
understands the danger involved in a
particular activity and voluntarily chooses
to do the activity anyway can be
acknowledged to have assumed the risk
himself. An individual who goes to a
hockey game assumes the risk of getting hit
by a flying puck.
2. Contributory Negligence Any negligence
on the part of an injured party will normally
defeat a claim. A few states use the
doctrine of contributory negligence.
3. Comparative Negligence More lenient and
used by more states than contributory
negligence. Contributory negligence on
the part of the injured party will not
necessarily defeat the claim but will be used
in some way to lessen the damages payable
by the other party.
4. There are two separate schools of thought:
1) Mississippi Rule- any defendant who is
partly at fault must pay in proportion to
their share of the fault. 2) Wisconsin Rule-
Used by most states, the defendant who is
least at fault is not required to pay for any
of the damages.
5. Intervening Cause/Last Clear Chance The
injured party would be able to collect
damages even if he/she had contributory
negligence if the other party had an
opportunity (last clear chance) to avert the
accident but did not do so.
6. Statutes of Limitations Time limit on how
long an injured person can sue for damages.
The injured party must act to collect for
damages during the given time period or
forfeits the right to do so.
7. Common Law Fellow Servant Rule An
employer cannot be held liable for the
actions of a co-worker if an employee is
injured due to the negligence of that co-
worker.
Common Law Defenses
Some of the more common Common Law defenses
include:
1. Automatism
2. Duress
3. Insufficient mental capacity
FAIR CREDIT REPORTING ACT
29 CPMI Professional Development, Inc.
4. SODDI- Some Other Dude Did It
Binders
The binding of coverage is the giving of an oral or
written statement that provides immediate insurance
protection for a specified time period, usually from
the time an application for coverage and premium
payment is accepted by the agent until a policy is
issued or denied by the insurance company.
Exclusive agents have authority to bind
coverage when they write an application.
Independent agents/brokers often do not
have authority to bind coverage, but rather
they submit the application to one of the
companies they represent and the insurer
may or may not bind the coverage.
All policy terms and conditions are in force until a
policy is issued or coverage is declined by the
insurer on whom the binder was written.
Insurance Consultation Services
Exemption
Insurance Consultation Service is any of the
following:
1. survey
2. consultation
3. inspection
performed by an insurer to reduce the likelihood of
injury, death or loss.
If a consultation is made or not made, this does not
subject the insurer to liability for damages occurring
as a result of omission during insurance
consultation services. Unless the damages (injury,
death or loss)
1. Occurred during the performance of the
consultation and was caused by negligence
2. Are the result of any consultation service
required by a service contract
3. Are the result of actions by the insurer
which are determined by a judge to be
criminal, malicious, or because of gross
negligence
The Fair Credit Reporting Act is a federal law
that regulates the collection, dissemination, and use
of consumer information, including consumer credit
information
A growing number of personal auto and
homeowner's insurance companies have begun
looking at consumer credit information to decide
whether to issue or renew policies, or to decide
what premiums to charge for those policies.
Insurance companies may not use credit information
to discriminate against people with low incomes,
particular genders, or races. They also may not
gather information to track medical information
and use that in figuring credit worthiness and
premium rates.
Use of Credit Information
Underwriting departments use this information in
deciding whether to issue a new policy or to renew
existing policies. Some state laws prohibit insurance
companies from refusing to issue a new policy or
from non-renewing an existing policy based solely
on information obtained from a credit report.
Rating- Deciding what premium to charge, either
by placing the insured into a specific rating tier or
level, or by placing them into a specific company
within their group of companies. Some insurance
companies use credit information along with other
PRIVACY PROTECTION
The Gramm Leach Bliley Act regulates the
disclosure of non-public information to non-
affiliated third parties. When insurers gather
information from prospects and insureds, they must
TERRORISM RISK INSURANCE ACT
Purpose
Also known as TRIA, this federal law provides a
federal backstop for defined acts of terrorism and
imposes certain obligations on insurers. As a result
of this act Property and Casualty insurers must
participate in the Terrorism Insurance Program (the
Program) and must make coverage available for all
30 CPMI Professional Development, Inc.
more traditional rating factors such as motor vehicle
records and claims history. Some states allow
insurance companies to use credit alone to
determine the rate, others will not.
A consumer must be told if their premium has been
adversely affected by a credit score. They may get
a free report from the reporting agency, and
challenge any adverse information. While they can't
just change the information, they can:
1. discover what creditors issued offending
information and write them asking to
correct misinformation
2. Write the credit company with their side of
a credit dispute.
How Long can Negative Information
Stay on a Credit Report?
A credit reporting company generally can report
most negative information for seven years.
Information about a lawsuit or a judgment against
you can be reported for seven years or until the
statute of limitations runs out, whichever is longer.
Bankruptcies can stay on a report for up to 10 years.
The credit company won't generally report this
information after these time limits, but these time
limits on reporting negative information do not
apply if the credit report will be used in connection
with:
Your application for a job that pays more
than $75,000 a year
Your application for more than $150,000
worth of credit or life insurance
be informed that information will not be so shared,
and the insured must sign forms showing they have
had this information disclosed to them.
insured losses in all of their covered commercial
lines policies.
Definitions
Act of Terrorism
Any act that is certified by the Secretary of the
Treasury, in concurrence with the Secretary of State
and the Attorney General of the United States to be
an act of terrorism and:
1. to be a violent act or an act that is
dangerous to human life, property,
infrastructure
2. to have resulted in damage within the U.S.,
or outside the U.S. in the case of an air
carrier or vessel or on the premises of a
U.S. mission
3. to have been committed by an individual(s)
on behalf of a foreign person or foreign
interest as part of an effort to coerce the
civilian population of the U.S. or to
influence the policy or affect the conduct of
the U.S. Government by coercion.
No act that is committed in the course of a declared
war is considered an act of terrorism.
Exceptions:
1. For purposes of Workers' Compensation.
2. For the case of property and casualty
policies where the losses resulting from the
act exceed $5 million in total losses.
Insured Loss
Any loss resulting from an act of terrorism
(including an act of war, in the case of Workers'
Compensation) that is covered by primary or excess
property and casualty insurance issued by an insurer
if such a loss occurs:
1. within the United States.
2. in an air carrier (as described in section
40102 of title 49, United States Code), to a
United States flag vessel (or a vessel based
principally in the United States, on which
U.S income tax is paid and whose insurance
coverage is subject to regulation in the
U.S.), regardless of where the loss occurs,
or
3. at the premises of a U.S. mission.
Insured loss excludes amounts awarded in a civil
action that are attributable to punitive damages.
Insurers must make property and casualty insurance
coverage available for these insured losses that do
not differ materially from the terms, amounts, and
other coverage limitations applicable to losses
arising from events other than acts of terrorism.
Certified Loss
A loss that fits the definition of an insured loss as
described in the Act.
31 CPMI Professional Development, Inc.
Non-Certified Loss
A loss that is not covered as described in the Act.
Certified vs. Non-Certified Losses
The main difference between a certified and a non-
certified act of terrorism is that a certified act
always involves a foreign person or interest, while a
non-certified act may not.
Requirement for Terrorism Risk
Coverage to be Offered
Insurers are allowed to charge extra premium for
terrorism coverage, but must give the option to all
commercial property and casualty insureds.
To speed availability of terrorism risk insurance as
called for in the Act, rates and forms for the
coverage covered by the Act do not need to be pre-
filed with any state or be subject to prior approval
or a waiting period under any state's law through
December 31, 2003, but may be subject to
regulatory review for excessive charges or
compliance with state laws once the rates and forms
are in use.
Effect on Workers' Compensation
The federal program shares the risk of loss with
Workers' Compensation for acts of war as well as
for acts of terrorism.
Extension Act of 2005
The Extension Act of 2005 extended the program
through 2007. Updates Section 102(B) so that the
term property and casualty insurance does not
include the following types of insurance:
1. commercial automobile
2. burglary and theft
3. surety
4. professional liability
5. farm owners multiple peril
The insurer deductible for 2006 was the value of an
insurer's direct earned premiums for 2005
multiplied by 17.5%. The insurer deductible for
2007 was the value of an insurer's direct earned
premiums for 2006 multiplied by 20%.
The insurance marketplace aggregate retention
amount will now be the lesser of the aggregate
amount for all insurers and $27,500,000,000 for
2007 2014.
 The insurer deductible for 2008-2014 is the value of
Reauthorization Act of 2007 an insurer's direct earned premiums for the previous
year multiplied by 20%.
In December 2007, the Terrorism Risk Insurance
The U.S. Secretary will notify Congress within 15
Act was extended for 7 years until 2014. (Note:
days after an act of terrorism whether the aggregate
The current test outline only covers the Extension
insured losses will exceed $100,000,000,000.
Act of 2005, but the information is included here for
your convenience.)
Any policy that is issued or renewed after 2008
must provide clearly disclose to the policy owner
An act of terrorism can be done by any
the existence of the $100,000,000,000 cap.
individual(s) as part of an effort to coerce the
civilian population, no longer only in the interest of
The secretary is required to collect terrorism
a foreign person or interest.
premiums within two years or by 2017.

32 CPMI Professional Development, Inc.

 SECTION II - PROPERTY INSURANCE BASICS REVIEW QUESTIONS
1. Chris moves to another city before selling 6. Which section of the insurance policy
his house in the first city, leaving some of identifies the insured's responsibilities?
his property in the house to aid in its sale. a) Declarations
He leaves the insurance policy in force to b) Insuring Agreement
protect the house and personal property. c) Conditions
Three months later the insurer finds out that d) Exclusions & Endorsements
Chris is no longer living in the house and
decides to cancel the policy. Which 7. Where does a policy mention that once the
definition explains this situation and why insurer has paid a claim, the insurer has the
the insurer can cancel the policy? right to pursue action against a liable third
a) Unoccupancy party to recoup the loss?
b) Vacancy a) Arbitration clause
c) Abandonment b) Subrogation clause
d) Loss assessment c) Assignment clause
d) Other insurance provision
2. Which section of the insurance policy
identifies areas where there are reductions 8. The Standard Fire Policy insures against all
in coverage? of the following perils except:
a) Declarations a) fire.
b) Insuring Agreement b) lightning.
c) Conditions c) hail.
d) Exclusions & Endorsements d) removal of property to protect from
further damage.
3. Which section of the insurance policy
identifies the insured? 9. An act of terrorism must be certified as
a) Declarations such by:
b) Insuring Agreement a) The U.S. Secretary of the Treasury, the
c) Conditions Secretary of State and the U.S. Attorney
d) Exclusions & Endorsements General.
b) The President of The United States.
4. Which section of the insurance policy c) The Secretary of State and the U.S.
identifies the insurance company's Attorney General.
responsibilities? d) The U.S. Secretary of the Treasury, as
a) Declarations approved by the U.S. Congress.
b) Insuring Agreement
c) Conditions 10. For a loss due to terrorism to be considered
d) Exclusions & Endorsements an insured loss, the loss must occur in any
of the following locations except:
5. Calvin sells his home to Don and Peg. In a) within the United States.
order to make the sale easier, he wants to b) on a U.S. flag vessel in foreign waters.
transfer his Homeowners insurance policy c) on the premises of a U.S. embassy.
to them at the time of the closing. Which d) on a vessel on which U.S. income tax is
part of the policy explains this type of paid, regardless of where the vehicle's
situation? insurance coverage is regulated.
a) Arbitration clause
b) Subrogation clause
c) Assignment clause
d) Other insurance provision

33 CPMI Professional Development, Inc.

 Section III - Dwelling Policy
CHARACTERISTICS AND PURPOSE
Dwelling Policy (DP) forms are mono-line policies.
Mono-line policies only cover one type of
insurance. The DP covers the dwelling/building
only, not liability or theft. Contents coverage is
included only by endorsement.
Eligibility
Certain criteria must be met to be eligible for a
Dwelling policy:
1. Maximum of four families and five
boarders in the building
2. Owner occupancy not required
3. Mobile homes can be included on a
Dwelling form policy, but only if they are
permanently located
4. Incidental service business occupancy only,
such as beauty shops, music lessons, or
professional offices with a maximum of two
workers.

COVERAGE FORMS: PERILS INSURED AGAINST AND PROPERTY COVERED

Definitions eruption
3. Vehicle damage
4. Windstorm
Appurtenant Structures 5. Smoke
Other buildings or structures on the premises which
6. Hail
are of lesser value than the main building being
7. Aircraft damage
insured. Includes buildings such as storage sheds or
8. Explosion
guest houses. Also called separate structures.
General Policy Exclusions (8)
Fair Rental Value In a named peril policy, any peril that is not
Similar to additional living expense, fair rental
specifically mentioned is automatically excluded.
value can cover the loss of rents due to damage to
There are eight perils that are explicitly excluded
the rented property if the damage is due to a
from all property policies:
covered peril. It applies only for the period required
1. Earth movement
to repair or replace the damage.
2. Ordinance or law changes
3. Water damage by flood
Homes that are under construction are often covered
4. Sewer back-up
under a dwelling policy with the Building/Dwelling
5. Overflow from a sump pump
Under Construction endorsement, which is
6. Power interruption/failure
explained later.
7. Neglect
8. War or nuclear risk
Standard Fire Policy Perils
Other generally excluded perils include:
Standard Fire Policy perils include: 1. artificially generated electrical current
1. Fire, 2. explosion of steam boilers
2. Lightning, and 3. predictable losses.
3. Removal of Property to prevent further
damage.
Basic Form (DP-1)
Extended Coverage Perils Covered Perils
The three standard fire perils
1. Riot or civil commotion The eight extended coverage perils
2. Above ground damage from volcanic Vandalism & malicious mischief (V&MM),

34 CPMI Professional Development, Inc.

 until the building is vacant for 30
consecutive days
Theft coverage is optional-broad form
coverage if owner-occupied, limited if
tenant-occupied
Coverage A-Building
Covered for Actual Cash Value (ACV).
Coverage B-Structures other than the
Building/Separate Structures/Appurtenant
Structures
Insured for 10% of the Coverage A amount. Can be
increased for additional premium.
Coverage C-Personal Property (Optional)
If covered, covered on an ACV basis for additional
premium.
Coverage D-Fair Rental Value
10% of the Coverage A amount if the rented
building is damaged by a covered peril.
Broad Form (DP-2)
Covered Perils
The Basic Form perils (Riot or civil
commotion, Above ground damage from
volcanic eruption, Vehicle damage,
windstorm, smoke, hail, aircraft
damage,explosion)
Broader explosion and smoke coverage
Glass breakage
Damage caused by burglars
Falling objects
Weight of ice, snow, and sleet
Collapse
Artificially generated electric currents
Freezing of or discharge from a plumbing,
heating, or cooling system
Theft coverage is optional- it is broad form
if owner-occupied, limited if tenant
occupied
Coverage A-Building
Building is insured for Replacement Value as
opposed to the Basic Form's ACV coverage.
Coverage B-Other Structures
Included.
Coverage C-Personal Property (Optional)
If covered, it is settled on an ACV basis.
35 CPMI Professional Development, Inc.
Coverage D-Fair Rental Value (Optional)
10% of the Coverage A amount if the rented
building is damaged by a covered peril.
Coverage E-Additional Living Expense
Insurer covers living expenses so the household
may maintain its normal standard of living; also,
payment will be for the shortest time to repair or
replace the dwelling, or the shortest time to settle
elsewhere.
Special Form (DP-3)
Special Form policies usually have more
underwriting requirements, such as greater square
footage, or the building being less than a certain
age. The buildings are more likely to be owner-
occupied, so greater coverage is available.
Special Form Covered Perils
All-Risk
The Special Form policy is the first policy written
on an all-risk basis. As described previously
these policies cover all risks unless explicitly
excluded from coverage. While the Basic and
Broad form policies only cover the perils listed in
the policy, some exclusions are listed, basically for
the sake of clarification, or to be more explicit.
Exclusions are more important to the all-risk
policy, because if a peril is not listed as excluded, it
is covered.
Coverages A, B, and D are each covered on an all-
risk basis (covered unless specifically excluded).
Theft coverage is optional.
Coverage A-Building
Covered for replacement value.
Coverage B-Other Structures (Optional)
Insured for 10% of the Coverage A amount. Can be
increased for additional premium.
Coverage C-Personal Property (Optional)
If included, covered against Broad Form perils only.
Coverage D-Fair Rental Value (Optional)
10% of the Coverage A amount if the rented
building is damaged by a covered peril.
Coverage E-Additional Living Expenses
Insurer covers living expenses so the household
may maintain its normal standard of living; also,
payment will be for the shortest time to repair or
replace the dwelling, or the shortest time to settle
GENERAL EXCLUSIONS
Excluded Perils for Basic Form:
1. The eight general policy exclusions (earth
movement, ordinance or law changes,
water damage by flood, sewer back-up,
overflow from a sump pump, power
interruption/failure, neglect, war or nuclear
risk)
2. Vandalism & Malicious Mischief (V&MM)
if the premises have been vacant 30
consecutive days
3. Artificially Generated Electrical Current
4. Explosion of Steam boilers
5. Predictable Losses (assumed)
6. Damages from a vehicle owned or operated
by an insured or a tenant
Excluded Perils for Broad Form:
The Basic Form policy exclusions (earth
movement, ordinance or law changes,
water damage by flood, sewer back-up,
overflow from a sump pump, power
CONDITIONS
Duties After a Loss
The insured must cooperate with the insurer in the
event of a claim investigation.
Legal Action
The time allowed to bring action against the insurer
is two years.
Other Insurance
Losses covered by a home warranty or service plan.
are covered first by the warranty or service plan.
SELECTED ENDORSEMENTS
Special Provisions for States
If a state's requirements differ from the policy
wording or change during the policy period, the
state regulations take precedence. The policy
36 CPMI Professional Development, Inc.
elsewhere.
interruption/failure, neglect, war or nuclear
risk, V&MM if the premises have been
vacant 30 consecutive days, artificially
generated electrical current, explosion of
steam boilers, damages from a vehicle
owned or operated by an insured or a
tenant)
Damage caused by agricultural or industrial
smudging (pollution)
Excluded Perils for Special Form
If a particular peril is not specifically excluded, it is
covered. The Special Form Exclusions include:
The Basic Form policy exclusions
Agricultural or industrial smudging
(pollution)
Damage by wear & tear, rot & deterioration
Settling & cracking, or mechanical
breakdown
Damage caused by birds, vermin, and
insects
The Homeowners Policy becomes secondary
coverage, paying after the other plan's coverage
ends.
Loss Payable Clause
A loss payee listed in the Declarations page is
considered an insured with respect to the property
they are linked to. The Loss Payee will be notified
in writing if the insured cancels or non-renews the
policy.
changes to meet the state regulation, whether the
written policy is changed or not.
Automatic Increase in Insurance
Adjusts the amount of property coverage (the
policy's face amount) according to a stipulated
annual percentage based on an index of costs to
rebuild or replace the property. Premiums will
increase along with the coverage.
Broad Theft Coverage
Coverage is on an all-risk basis for loss due to theft
or mysterious disappearance of personal property,
damage to premises and property resulting from
theft, with sub-limits on property particularly
susceptible to theft ( e.g. money, securities,
paintings and jewelry). Also covers vandalism and
malicious mischief to the premises interior and to
other property of the insured away from the insured
premises.
Dwelling Under Construction
Also known as the Builder's Risk form, this covers
buildings that are under construction for loss due to
liability or theft/destruction of materials or of
PERSONAL LIABILITY SUPPLEMENT
Provides personal liability coverage as a separate
policy (for example someone who owns neither
personal property nor an auto and hence, have no
37 CPMI Professional Development, Inc.
already finished construction.
Builder's Risk policies have been further broken
down to two methods of determining premiums:
1. Completed value form
Perhaps the most common method, the
completed value form determines the
amount of coverage based on the projected
value of the building when it is completed.
The insurer will pay the actual cash value of
a loss, up to the proportion of the coverage
as compared to the actual value of the
property after construction is finished.
If, for instance, the insured valued the final
construction at half-price when taking out
the insurance, the insurer will pay only half
of the ACV of the actual loss.
2. Reporting Form
The insured is required to file a monthly
report with the insurer that shows the
construction's current completion value.
Along with this the insured pays premium
only on the amount completed, and the
insurer is only responsible for a claim up to
the percentage of the final completed value
that is shown as the amount on the current
monthly report.
insurance for them) or on a supplemental basis to
the mono-line dwelling policies.
 SECTION III - DWELLING REVIEW QUESTIONS
1. In which of the following situations could a 4. Which of the following is not one of the
Dwelling Policy form not be used? twelve basic basic form exclusions for the
a) The owner does not live in the building. Dwelling policy?
b) There are three families, but two of a) Industrial Smudging
them have a non-family member living b) Explosion of Steam Boilers
with them c) Predictable Losses
c) There is only one family living in the d) Artificially Generated Electrical
building, but the wife does hairstyling Current
in the basement.
d) Five families live in the building, but 5. How will the loss payee be notified if the
there are no boarders. insured cancels or non-renews the Dwelling
policy?
2. Jim and Barb buy a rental unit and insure it a) Face-to-face
under a DP-2 policy. Which of the b) In writing
following situations would NOT be c) By phone
covered? d) Vocally
a) The kitchen ceiling caves in under the
pressure of snow after a severe 6. Adam lives in Delaware. His state's
snowstorm. requirements have changed since his
b) Children playing baseball in the lot next Dwelling policy started. What will take
door hit a ball through the front window precedence?
of the house. a) The municipality's regulations
c) A hailstorm damages the roof of the b) Adam's Dwelling policy
building. c) Delaware's regulations
d) A factory next door to the building d) A new policy will be immediately sent
spills chemicals that get into the to Adam
drinking water of the insured building.
7. The Dwelling Under Construction form is
3. Which of the following situations would also known as:
NOT be excluded from coverage in a DP-1 a) Builder's Risk Form
form policy? b) Broad Theft
a) The building has been vacant for 40 c) Automatic Increase
days. d) Major Coverages
b) The building falls into a sinkhole that
was located under it. 8. Broad Theft does not cover which of the
c) A flood causes damage to the building's following?
basement. a) Vandalism to the premises interior
d) The home next door to the insured b) Malicious mischief
building catches fire and the resulting c) 15 foot Sailboats
smoke causes damage to the insured d) Paintings
building.

38 CPMI Professional Development, Inc.

 Section IV - Homeowners Policy
COVERAGE FORMS
Note: The HO-1 is rarely used anymore and there is
no HO-7 policy.
HO-1
The HO1 Home Insurance Policy is the most basic,
named perils insurance policy available to
homeowners. Most homeowners that purchase HO1
insurance are insuring for catastrophic losses only.
The HO1 home insurance policy only protects the
home and contents for the most common perils that
occur. It is a very uncommon form today
Perils Insured Against with the HO-1 Home
Insurance Policy
The 10 perils the HO1 Home Insurance Policy will
protect your home and belongings from are:
1. Fire or Lightning
2. Windstorm or Hail
3. Explosion
4. Riot or Civil Commotion
5. Aircraft
6. Vehicles(unless caused by the insured)
7. Smoke
8. Vandalism or Malicious Mischief
9. Theft (limit of liability on HO1 is usually
$1,000)
10.Volcanic Eruption
The HO-1 policy can Be Replacement Cost or
Actual Cash Value
HO-2 Through HO-8
The definition of Insured has been expanded under
HO the Homeowner policies to include other
persons under the age of 21 and in your care or the
care of a resident of your household who is your
relative.
Broad Form/HO-2 (Named Peril)
The Broad Form policy does not cover losses done
by a vehicle owned or operated by the insured to a
fence, driveway, or walkway.
Special Form/HO-3 (All-Risks/Open
Peril)
1. Buildings on an HO-3 policy are protected
39 CPMI Professional Development, Inc.
against all risks except those specifically
excluded.
2. Concurrent Causation principles, however,
say that if two causes combine to produce
loss or damage, and one of the two causes is
excluded (e.g. flood) and the other cause is
covered (e.g. windstorm), the loss will be
covered.
3. Coverages A- Building and B-Separate
Structures, are covered on a Replacement
Cost basis. Coverage C - Personal Property
is covered on an ACV basis but may be
endorsed to a replacement cost basis.
4. Does not cover losses done by a vehicle
owned or operated by the insured to a fence,
driveway, or walkway.
Homeowners Contents/Tenant/Renter's
Coverage/HO-4
There is no building coverage in a renter's policy.
1. In the Renter's Policy, Coverage C-
Personal Property is the stated, basic
insured amount.
2. Renter's Coverage D-Additional Living
Expense is for 20% of the Coverage C
amount. It is used by the insured for a
motel or other living accommodations while
waiting for their rental unit to be repaired.
Comprehensive Form/HO-5 (All-
Risk/Open Peril)
As with the HO-3, the HO-5 policy protects both
the building and outbuildings on an all-risk basis,
except for those specifically excluded.
Coverage C - Personal property is also
covered on an all-risk basis and on a
replacement cost basis, as opposed to the
HO-3's ACV basis coverage
While claim settlements are usually ACV,
market value or stated value basis on the
HO-1, 2, and 3, the HO-5 settlements are
usually based on replacement cost basis.
Guaranteed Replacement Cost
A modification of Replacement Cost, buildings are
replaced at the actual cost to replace, even if more
than the stated insurance amount.
Extended Replacement Cost
A cap such as 25% is placed on the amount over the
actual stated insurance amount that the insurer will
pay to replace property.
Condominium Unit Owner Form/HO-6
Special Form coverage can be purchased for
additional premium.
Condo unit coverages:
Coverage A-Building
The HO-6 policy protects interior walls and
structures the unit owner owns individually, such as
cabinets, plumbing and electrical fixtures and wall-
to-wall carpet.
Coverage B-Outbuildings
(Optional in case the insured is responsible for
protecting such.)
Coverage C-Personal Property
Covers a stated amount as in a Renters Package.
Coverage D-Additional Living Expense
20% of Coverage C (personal property) amount.
Loss Assessment Coverage
Loss assessment is an optional coverage that
protects the individual condominium owner from
their share of a pro-rata loss assessed by the
association for losses over the amount of the
association's policy, usually in amounts between
$1,000 and $5,000. This could happen from a loss
sustained in a common area used by all the condo
owners, such as a pool, or extending beyond the
PROPERTY AND LIABILITY COVERAGES
While Coverages A-D cover the physical property
itself, Coverages E and F are for liability, including
personal liability and medical payments to others.
Coverage A-Dwelling
Buildings coverage includes only the dwelling
itself.
Coverage B-Other Structures
Also called appurtenant structure or separate
40 CPMI Professional Development, Inc.
bounds of the association's policy over the entire
complex.
Condo coverage can be tricky. The condo
association must purchase an association policy to
cover building exteriors, outbuildings, and common
properties and liabilities owned collectively by all
the condominium owners. Different condo
associations include different parts of the structure
as association-owned. Some include the basic
cabinets, plumbing, and wall-to-wall carpets, but
not any upgrades. Others include only to the
drywall and floor surrounding the unit. Still others
include all parts of or attachments to the building,
needing only a renter's policy to cover the insured's
personal property and liability. Care must be given
to ensure the correct coverage is extended in each
case.
Market Value/ Modified
Coverage Form HO-8
This is used primarily for homes and structures that
might have a replacement cost greater than the
market value. For example, older homes, usually
built before 1950, often have ornate details or may
involve reproducing obsolete techniques at high
labor costs.
Building coverage is actual cash value or
repair cost using functionally equivalent
materials and methods rather than a
replacement cost basis.
HO-8 personal property is covered on an
ACV basis unless endorsed to a
replacement cost basis.
structure coverage, this coverage includes such
things as a separate garage, a shed, fencing, or an
in-ground swimming pool. An above-ground
removable pool would be considered personal
property.
Coverage C-Personal Property
Covers furniture, clothing, appliances, etc. Personal
property which is usually located at the insured's
residence, but is temporarily away from those
premises or is stored at a self-storage facility, is
limited to 10% of the Coverage C amount or
$1,000, whichever is greater. This 10% limit does
not apply to personal property moved from the
primary residence while the residence is being
repaired, or while in a newly acquired principal
residence for up to 30 days. Personal property
coverage is usually on an ACV basis except for the
HO 5, but replacement cost coverage may be
endorsed with extra premium.
Coverage D-Loss of Use
Includes temporary rental or motel expenses, meals
out, and other costs over and above normal living
expenses while an insured home is being repaired
due to loss suffered by an insured peril, but not
normal expenses such as a mortgage.
Coverage E-Personal Liability
Covers amounts for which an insured is legally
liable because of bodily injuries or property damage
caused to third parties, whether on or away from the
insured premises. Includes $100,000 liability
coverage.
1. On-site liability example: A visitor falls
down the stairs of the insured home.
2. Off-site liability example: The insured
breaks someone's leg while playing
basketball at a local gym.
Coverage F-Medical Payments to
Others
Medical payments cover emergency medical
treatment to those other than the insured for injuries
suffered on the insured premises or caused by an
insured. Medical payments coverage is considered
goodwill coverage and is included in addition to
liability coverage. It is often viewed and used as a
method to avoid the need for entering the liability
coverage area by taking care of minor injuries.
Additional Coverages
Debris Removal
Fallen tree removal is $1,000, with a $500 limit for
any one tree. Coverage is available if the fallen
tree:
1. damages a covered structure
2. blocks a driveway, preventing a motor
vehicle from entering or leaving the
41 CPMI Professional Development, Inc.
residence premises
3. blocks a ramp or other fixture designed to
help a handicapped person to enter or leave
the dwelling.
Ordinance or Law
Coverage of up to 10% of the Coverage-A limit for
the increased cost to repair or rebuild a dwelling or
other structure to conform to applicable building
and land use codes is included as part of the
Homeowners policies without endorsement.
Additional amounts of coverage may be purchased
for additional premium. This is not covered under
the HO-8 policy.
Credit Card, Fund Transfer Card, Forgery
and Counterfeit Money
This includes coverage for electronic fund transfer
cards and devices used to deposit, withdraw or
transfer funds.
Collapse
Building collapse, or the abrupt falling down or
caving in of all or part of a building, or the risk of
loss involving a collapse making the collapsed
portion so that it cannot be occupied is covered.
Collapse resulting from hidden decay or hidden
insect or vermin damage is excluded if the insured
knew about the damage before the building
collapsed. Collapse is not covered under the HO-8
policy.
Breakage of Glass or Safety Glazing
Material by Earth Movement
The HO forms allow for coverage of glass that is
part of a covered building, storm door, or storm
window when caused directly by earth movement.
Direct physical loss to covered property caused
solely by the pieces, fragments, or splinters of such
broken glass is also covered.
Grave Markers
Up to $5,000 for grave markers, including
mausoleums, on or away from the insured premises,
is covered for loss caused by a peril insured against.
Smoke Coverage
In the homeowners policy, smoke coverage includes
the release of soot, vapor, and fumes from a boiler,
furnace, or similar equipment.
Policy coverage limit percentages are different,
depending on the type of policy and the number of
families in the dwelling.
OtherAdditions
legal fees for defending the insured if a
lawsuit goes to trial.
PERILS INSURED AGAINST
Broad Form/HO-2, Named Perils:
The three standard fire perils (Fire,
Lightning, and Removal of Property to
prevent further damage.)
The eight extended coverage perils(Riot or
civil commotion, Above ground damage
from volcanic eruption, Vehicle damage,
windstorm, smoke, hail, aircraft damage,
explosion)
Vandalism & malicious mischief (V&MM),
until the building is vacant for 30
consecutive days
Broad form theft is included in owner-
occupied homes.
Special Form/HO-3, All-Risks/Open Peril
Buildings on an HO-3 policy are protected against
all risks except those specifically excluded.
Personal property is insured against the Broad Form
named perils, which include:
The Basic Form perils (fire, lightning, and
removal of property to prevent further
damage, and the eight extended coverage
perils of (riot or civil commotion, above
ground damage from volcanic eruption,
Vehicle damage, windstorm, smoke, hail,
ADDITIONAL HOMEOWNER NOTES
Pair and Sets Clause
If a single item in a pair or set is lost or destroyed,
the insurer will repair, replace, or pay the value of
the lost part, or will pay the difference between the
actual cash value of the property before and after
the loss. This provision prevents the insured from
collecting for a total loss when only a part of a pair
or set is lost.
Example
(Note- numbers used here are strictly arbitrary.
There is no formula to determine the value of a set
42 CPMI Professional Development, Inc.
claims expense.
first aid expense for others.
damage to property of others when not
legally liable.
loss assessment coverage.
aircraft damage, explosion)
Broader explosion and smoke coverage
Glass breakage
Falling objects
Weight of ice, snow, and sleet
Collapse
Artificially generated currents
Freezing of or discharge from a plumbing,
heating, or cooling system
Theft coverage is optional--broad form if
owner-occupied, limited if tenant occupied
Homeowners Contents/ Tenant/ Renter's
Coverage/HO-4
Coverage is against the Broad Form named
perils listed previously.
Comprehensive Form/HO-5 (All-
Risk/Open Peril)
These policies cover all risks unless
explicitly excluded from coverage for both
building and personal property.
Condominium Unit Owner Form/HO-6
Includes the Broad Form named perils
listed above.
vs. individual pieces.) A set of 12 silver spoons may
be worth $1,800 as a set, but each individual spoon
is worth only $100. If one spoon is lost or
destroyed, the remaining spoons are worth only
$1,100. The loss of the one spoon, therefore, is not
$100, but the loss to the set as a whole, for a total
loss of $700.
Additional/Supplemental Coverages
Payments over the stated insured amount include:
Debris removal and cost of reasonable
repair to prevent additional loss.
 Loss of trees, shrubs, and plants is covered, Fire department charges are covered up to a
but for limited perils only, and coverage is $500 limit.
limited to only 5% of the Coverage A Credit card, check forgery, or counterfeit
amount, and there is a $500 limit/plant. money is covered with a $500 limit.

EXCLUSIONS
Hovercraft and Parts 6. War
Self-propelled motorized ground effect vehicles 7. Nuclear
such as flarecraft and air cushion vehicles. 8. Freezing of plumbing
9. Theft in or to a dwelling under construction
Water or Steam 10. Vandalism
Water is not considered personal property of the 11. Hidden mold or wet rot
insured, even after it has passed through the 12. Wear and tear
insured's water meter. 13. Pollution
14. Concurrent Causation
Excluded Perils 15. The insured's animals and/or pets
The general fire policy exclusions-however,
Homeowners policies do include theft and Additional Liability Exclusions
will cover vehicular damage to the building, The following types of liability were added as
even if done by the owner or tenant. specific exclusions under the HO policies:
Vandalism and Malicious Mischief Communicable Disease- Bodily injury or
(V&MM) if vacant for 60 days property damage arising out of the
Agricultural and industrial smudging transmission of a communicable disease by
(pollution) an insured.
Damage by wear & tear, rot & Sexual Molestation, Corporal Punishment,
deterioration, settling & cracking, or or Physical or Mental Abuse
mechanical breakdown (i.e., a furnace) Controlled Substance- Bodily injury or
Damage caused by birds and insects property damage arising out of the sale,
Damage to animals (such as pets) of the manufacture, delivery, transfer or
insured or caused by animals of the insured possession by any person of a controlled
substance, including cocaine, LSD,
As discussed earlier, the following perils are marijuana and all narcotic drugs, except by
generally excluded under Property insurance the legitimate use of prescription drugs
policies, but may be added for additional premium: under the care of a licensed physician.
1. Ordinance or law Liability caused by intentional acts by or at
2. Earth movements - mine subsidence and the direction of the insured, or failure to
earthquake prevent another person's intentional act
3. Flood (covered through the National Flood Liability to an insured's employee which
Insurance Program- NFIP) should be covered by Workers Comp
4. Sewer back-up and sump pumps policies
5. Off premises power failure--loss caused by Professional liability
power company outages Business Pursuits
Vehicle, Watercraft, or Aircraft

43 CPMI Professional Development, Inc.

 CONDITIONS
The Conditions section of the Homeowners policy Legal Action
is the same as in the Dwelling policy, and includes Other Insurance
the following: Loss Payable Clause
Duties After a Loss

Personal Property Replacement Cost

Homeowners-2, -3, -5, and -8 Policies
Coverage Limit of Liability
A This is the primary limit:
Dwelling ACV, Market Price, or Replacement Cost
B One and Two Family Dwellings: 10% of Coverage A
Other Structures Three and Four Family Dwellings: 5% of Coverage A
C One and Two Family Dwellings: 50% of Coverage A
Personal Property Three Family Dwellings: 30% of Coverage A
Four Family Dwellings: 25% of Coverage A
D Any necessary increase in living expenses so the household can maintain its
Loss of Use normal standard of living- Payment will be for the shortest time required to
repair or replace the damage or, if the insured permanently relocates, the
shortest time required for the household to settle elsewhere

Homeowners-4 and -6
Coverage Limit of Liability
A Homeowners-4: Not applicable
Dwelling Homeowners-6: $1,000 limit
B Not applicable
Other Structures
C This is the policy's primary limit, and the coverage amount depends on the
Personal Property amount of the insured's personal property.
D Any necessary increase in living expenses so the household can maintain its
Loss of Use normal standard of living- Payment will be for the shortest time required to
repair or replace the damage or, if the insured permanently relocates, the
shortest time required for the household to settle elsewhere

Special Limits of Liability

Money, bank Notes, bullion, gold or silver other than goldware or silverware $200
Securities, manuscripts, passports, tickets and stamps $1,500
Watercraft, including trailers & equipment $1,500
Trailers & semi-trailers not used with watercraft $1,500
Theft of jewelry, watches, furs and precious/semi-precious stones $1,500
Theft of silverware, goldware, pewterware, platinumware, or things plated with these $2,500
metals
Grave markers and mausoleums (not covered under HO-8) $5,000
Personal property used for business purposes $2,500
Property away from residence used for business purposes $1,500
Electronic devices and accessories used primarily for business while away from $1,500
residence premises

44 CPMI Professional Development, Inc.

 Electronic devices while in, upon or away from a motorized vehicle
Theft loss of firearms and related equipment
SELECTED ENDORSEMENTS
Special Provisions for States
If a state's requirements differ from the policy
wording or change during the policy period, the
state regulations take precedence. The policy
changes to meet the state regulation, whether the
written policy is changed or not.
Limited Fungi, Wet or Dry Rot,
or Bacteria Coverage
Coverage is included on the HO-3 and HO-5, and
endorsable on the other forms.
Loss is covered when such damage is caused by the
accidental discharge or overflow of water or steam,
or by constant seepage or leakage of water or the
presence of condensation or humidity, moisture or
vapor. The resulting damage must be unknown to
all insureds and be hidden in the walls, ceilings or
beneath the floors or above the ceilings of a covered
structure. This endorsement covers the cost of
damages caused by this peril in the building if the
loss is caused by a peril insured against during the
policy period. Subject to the limits the insured
chooses and for additional premium, this
endorsement covers the cost to:
Remove the fungi
Tear out and replace any part of the building
as needed to gain access to the fungi
Test air or property to confirm the absence,
presence, or level of fungi, but only if there is
a reason to believe there is the presence of
fungi, wet or dry rot or bacteria.
Permitted Incidental
Occupancies
Homeowner policies cover personal property and
liability and extends coverage on a limited basis to
property that is used in a business. The Permitted
Incidental Occupancies endorsement extends
coverage to premises business property and
premises liability for a named particular businesses.
45 CPMI Professional Development, Inc.
$1,500
$2,500
Off-premises coverage not included.
Earthquake
Covers loss caused by earthquake or volcanic
eruption. Earthquake coverage can be for the
buildings only, or for both the buildings and
personal property of the insured. When added to
the property policy, earthquake coverage may have
the same deductible as the rest of the policy but
usually has a separate deductible that is often
expressed as a percentage of the total loss rather
than a set amount.
Note that if there is an earthquake, it is often
followed by aftershocks. As long as the after
shocks are within 168 hours of the initial quake,
they are considered a single occurrence. If 168
hours has passed before another shock occurs,
insurers consider them separate occurences.
Scheduled Personal Property/
Personal Article Floater
An endorsement which provides open-peril
coverage on specific property. The insured
schedules both the coverage and the value. Often,
a current appraisal of the object's value is needed.
There are nine different types of property that can
be endorsed:
1. Personal furs
2. Personal jewelry
3. Silverware
4. Golfer's equipment
5. Cameras
6. Guns
7. Fine arts and antiques
8. Stamp and coin collections
9. Musical instruments
While this is a floater that is usually attached to
homeowner policies, it is considered a commercial
policy form.
Home Day Care
Property and liability coverage for a home day care
business may both be endorsed or added to the
policy. The typical endorsement is for insureds
caring for up to three children in addition to the
insured's own children. Special permission from the
insurer's underwriting department required for more
children.
Windstorm or Hail
(all forms except HO-4 & HO-6)
A percentage deductible is applied to the total loss
caused by windstorm or hail, separate from the
policy deductible. Windstorm or hail damage may
be totally excluded from coverage for a premium
credit, or may be endorsed to be covered by Actual
Cash Value for such losses.
Special Additional Amount of
Insurance for Coverage A
Dwelling (Forms HO-2, HO-3 & HO-5)
Coverage is extended to cover an additional
percentage over the coverage amount of the
dwelling in Coverage A if the insured has allowed
the insurer to increase the coverage on the home
along with inflation, and with additional premium.
Identity Fraud Expense Coverage
Covers expenses up to $15,000 incurred by the
insured if a means of identification of the insured
(such as a driver's license or passport) is unlawfully
taken with the intent to commit any unlawful
MOBILE HOME POLICIES
Mobile homes are legally classified as personal
property and are not covered by Homeowners
policies. Mobile homes have their own policies that
have been developed for them. Mobile home
coverage includes:
the structure itself
original equipment as well as additions
appurtenant (added) structures
personal property
liability coverage
medical payments to others.
46 CPMI Professional Development, Inc.
activity. Expenses include notarized affidavits,
certified mail to law enforcement officials, lost
income up to $200 per day, loan application fees for
reapplication for loans rejected as the result of
incorrect information, reasonable attorney fees to
defend lawsuits brought against the insured because
of the identity theft. This endorsement has a special
$250 deductible.
Functional Replacement Cost
(Forms HO-2, HO-3 and HO-5)
The amount to repair or replace a damaged covered
building with less costly common construction
materials and methods that are the equivalent to
obsolete, antique, or custom materials and methods
used in the building's original construction.
(Receives a premium discount.)
Property Remediation for Escaped Fuel
& Limited Lead & Escaped Liquid Fuel
Liability
Covers covered real property (land and buildings)
and personal property from damage caused by
escape of liquid fuel from a fuel system, boiler,
heater or pumping apparatus located on an insured
location. Also covers the cost to temporarily stop
such leakage and clean up or remove the damage as
required by law or in response to a governmental
authority request. The endorsement does not pay
for any reduction in market value, fuel replacement,
or repair or restoration of the fuel system.
Restrictions on Mobile Home Policy
Coverage
Actual cash value coverage on both the
structure and personal property is standard.
Replacement cost can be endorsed on the
structure, but not usually on contents.
Age and value requirements are common,
where the insurer will only insure mobile
homes less than a certain age and greater than
a certain monetary value.
 SECTION IV - HOMEOWNERS REVIEW QUESTIONS
1. Debra's Victorian home has ornate wood
banisters along a winding staircase, as well
as intricate moldings around the windows.
If a fire destroys the house and the
insurance company replaces the woodwork
with standard material and work, which of
the following types of coverage does Debra
have?
a) Replacement cost
b) Guaranteed replacement cost
c) Functional replacement cost
d) Stated value
2. Ted just bought a home in a small town for
$60,000. He knows the home would cost
$150,000 if he were to build it today, but
wants to insure the home for the actual cost
he paid for it. For which of the following
coverages types will he insure the home?
a) Actual cash value
b) Replacement cost
c) Market value
d) Stated value
3. The amount of personal property coverage
in an HO-6 policy form is:
a) a stated amount.
b) 10% of the Coverage A amount
c) 50% of the Coverage A amount.
d) Personal Property is not covered on an
HO-6 policy.
4. Which of the Homeowners forms would
offer the least coverage, but still cover
damage caused by a deer breaking the front
window of the insured building?
a) HO-1
b) HO-2
c) HO-3
d) HO-5
5. What is the standard amount of coverage
for Separate Structures on a Homeowners
Policy?
a) 10% of Coverage A
b) 10% of Coverage B
c) 20% of Coverage A
d) 20% of Coverage B
6. Which statement is true regarding Mobile
Home policies?
47 CPMI Professional Development, Inc.
a) Mobile homes are covered as dwellings
b) Medical coverage is not included.
c) Personal property is covered with
replacement cost
d) A mobile home is personal property.
7. The RWE Safe Condominium Association
is sued for liability damages when a visitor
drowns in the association's pool. The
amount of damages awarded is above the
liability limits of the association's policy.
Which of the following would give the
individual association owners coverage for
their share of the amount in excess of the
association's policy?
a) Replacement cost
b) Loss assessment
c) Liability coverage
d) Additional living expense
8. Ray has an HO-5 all-risk policy. He came
home one day to find his house burglarized
with $800 stolen. If Ray had a $200
deductible, how much would the insurer
pay to indemnify him?
a) $0
b) $250
c) $300
d) $550
9. Gene and Dee have an HO-3 policy with
the building insured for $100,000. How
much coverage of personal property do Dee
and Gene have for property they keep
stored at a second residence they own?
a) $0
b) $1,000
c) $5,000
d) $10,000
10. Which of the following would not be
allowed a homeowner policy under the HO
eligibility rules?
a) A building with four families living in it
b) A home with one family that has two
boarders
c) A building with three families living in
it
d) A one family home with an incidental
bakery business
11. What is the special limit of liability for theft b) Removal of the fungi
of jewelry on the HO policies? c) The cost to tear out and replace any part
a) $500 of the building as needed to gain access
b) $1,000 to the fungi
c) $1,500 d) The cost of a house guest's medical bills
d) $2,500 after he or she becomes ill because of
the presence of mold.
12. Pritika and Allan bought a home built in the
1880's in a small town for $85,000 that 14. The amount to repair or replace a damaged
would cost $235,000 to rebuild if destroyed covered building with less costly common
because of the ornate molding and construction materials and methods which
windows. What type of Homeowners are the equivalent to obsolete, antique or
policy would BEST cover their needs if custom materials and methods used in the
Pritika and Allan would be willing to building's original construction is called:
rebuild the home with functionally a) Functional Replacement Cost
equivalent materials and modern b) Replacement Cost
techniques? c) Modified Replacement Cost
a) HO-2 d) ACV
b) HO-3
c) HO-5
d) HO-8

13. Which of the following is NOT covered by

the Limited Fungi, Wet or Dry Rot, or
Bacteria Coverage endorsement in the HO
policies?
a) Periodic testing of the building to test
for the possible existence of fungi

48 CPMI Professional Development, Inc.

 Section V - Commercial Package Policy
(CPP)
INTRODUCTION
Our thriving economy does so well because of the
many different types of businesses that have sprung
up to meet the needs of people. The fact that these
businesses are so different means that they have
quite different needs in terms of insurance
protection. A restaurant, for instance, has different
needs than a bookstore, a trucking company, or a
manufacturing plant.
For this reason, the first commercial policies were
customized to the needs of the particular business.
Fire insurers wrote commercial fire policies that
covered losses from fire and extended coverage
endorsement perils, but did not cover property away
from the insured premises, theft, or crime. Casualty
insurers developed commercial auto policies and
boiler and machinery policies to cover the particular
nuances of that market. There were no general
guidelines for policies, and coverages could differ
greatly from one company to another. Also, gaps in
coverage developed between different companies,
COMPONENTS OF A COMMERCIAL POLICY
As stated above, the Commercial Package Policy
allows the insured to pick and choose coverages on
a monoline policy basis, grouping the monoline
policies together into one place for the insured's
convenience.
There are two required sections:
1. Common Policy Declarations
2. Common Policy Conditions contains the
agreed upon legal obligations and duties of
the insurer and the insured.
This will include:
a) Policy Period (loss must occur between
policy inception and cancellation dates)
b) Policy Territory (coverage only in the U.S.,
its territories, Puerto Rico, or Canada)
c) Policy cancellation or changes
d) Concealment
e) Misrepresentation or fraud
f) Insurer's right to examine company
49 CPMI Professional Development, Inc.
policies, and policy types.
Insurance Services Office (ISO)
The ISO is an independent organization that
services the insurance industry. The ISO developed
standardized forms to offer a spread of coverages to
larger segments of the business marketplace in
1986. Coverage modules allow for policy
flexibility, because some coverages might be needed
by one type of business but not by another. Two
broad categories are:
1. Commercial Package Policy (CPP)
(for Large businesses)
Allows insured to pick and choose
coverages on a monoline policy basis,
grouping the monoline policies together
into one place for the insured's convenience
2. Business Owners Package Policy (BOP)
(for Smaller businesses)
A package of coverages that will serve the
needs of most small businesses
records and to hold inspections and
surveys
g) Other insurance provisions
h) Policy liberalization procedures
i) Premium amounts
j) Subrogation
The Commercial Policy must also contain at least
two of the following commercial coverages:
1. Commercial Property
2. Commercial General Liability
3. Commercial Crime
4. Commercial Auto
5. Commercial Inland Marine
6. Boiler & Machinery
7. Farm Property and Liability
Common Policy Declarations
Contains information about the insured, the
inception and ending dates and premium charges.
Each coverage part in the policy has its own
declarations page, because each is a monoline
policy in and of itself.
Interline Endorsements
Endorsements can modify one or more of the
Commercial Package Policy coverages. An
interline endorsement modifies two or more
coverages.
One or More Coverage Parts
Coverage on Commercial Building and Property
forms or parts is on a monoline basis for the
buildings only.
Coverage is on an ACV basis, but
replacement cost settlement can be added as
an endorsement.
Covered Peril Forms include those
COMMERCIAL PROPERTY
Commercial Property Conditions
Form
A Commercial Property Policy (CPP) consists of
the basic parts of a policy:
Declarations
Insuring Agreement
Conditions
Exclusions and Endorsements
Coverage Forms
Building and Personal Property
The structure of the Building & Personal Property
Coverage Form includes:
Covered Property
Buildings-Listed and described in
the Declarations section; anything
that is or has become a permanent
part of the buildings (additions,
fixtures, extensions, machinery, and
equipment) is covered as well.
Business Personal Property-
property that is owned by the
insured and used in the course of
50 CPMI Professional Development, Inc.
discussed earlier in the Dwelling and
Homeowners Policies-Basic, Broad and
Special causes of loss forms and the
Earthquake Form.
Sinkhole and sprinkler leakage damage is an
added peril.
V&MM is also a Commercial peril, but is not
covered if the property has been vacant for 60
days or more.
The most common Commercial Property Coverages
include:
Building and Personal Property
Coverage Extensions
Commercial Property Form Endorsements
Glass
Condominium Association
Builders Risk Form
Legal Liability Form
Leasehold Interest Form
Mortgage Holders Error & Omissions Form
Tobacco Sales and Warehouse Form.
the insured's business.
Personal Property of Others-items
covered under this heading include
improvements and alterations made
by the insured to a building that is
leased and that cannot be removed
upon the termination of the lease,
as well as personal property of
someone other than the insured that
is under the care, custody, or control
of the insured.
Other Provisions-
Additional Coverages (extra perils
covered)
Extensions of Coverage (additional
amounts)
Newly Acquired Buildings/ Personal Property
Any newly acquired/constructed building coverage
is temporary as it exists for a finite period no greater
than policy expiration or 30 days. Coverage during
this temporary period is limited to $250,000 per
newly acquired or constructed building and
$100,000 for personal property at each of these
same covered buildings.
Business Personal Property Exclusions
Covered property does not include:
accounts, bills, and currency
animals unless held for sale or boarded by
the insured, or owned and held as stock
inside of buildings
automobiles held for sale
aircraft and watercraft unless held for sale
crops outside of buildings
signs not attached to the insured building
contraband or property from illegal trade
bridges, roadways, walks, patios, or other
paved surfaces
the cost of excavations, grading, filling, or
backfilling
foundations of buildings, structures,
machinery or boilers if their foundations are
below the lowest basement floor or the
surface of the ground, if there is no
basement
land (including land on which the property
is located), water, growing crops or lawns
personal property while airborne or
waterborne
bulkheads, pilings, piers, wharves, or docks
property that is covered under another
coverage form of any other policy in which
it is more specifically described, except for
the excess of the amount due (whether the
insured can collect on it or not) from that
other insurance
retaining walls that are not part of a
building
underground pipes, flues, or drains
electronic data, except as provided under
Additional Coverages
the cost to replace or restore information on
valuable papers and records, including
those which exist as electronic data.
Condominium Association
Covers buildings and fixtures and is primary to
individual unit owner policies.
Some association policies cover the entire
building.
Some policies cover only up to the
drywall, with the individual condo owners
responsible for covering from the paint in,
such as cabinets and built-in bookshelves.
Condominium Commercial Unit-Owners
Protects the owner of a business or commercial
condominium unit against loss or damage to
51 CPMI Professional Development, Inc.
furniture, fixtures, stock, and improvements or
alterations owned by the insured.
Builders Risk
Covers commercial, residential, or farm buildings
that are under construction.
Business Income
Covers earnings losses while the business is shut
down to remodel and restock after a loss due to a
covered peril. Incomes included in this coverage
are:
1. net income before taxes
2. earnings necessary for continued operating
expenses
3. extra expense coverage.
Operating expenses are those like utilities,
advertising, rent or mortgage payments, and payroll.
Payroll is automatically included unless excluded
by endorsement. This coverage allows a business to
maintain employees who might otherwise be lost if
they had to look for a different job. Coverage is on
a co-insured basis, with the insured choosing the
level of coverage-50%, 75%, 80%, or 100%. The
insured chooses the percentage of lost income
coverage she wants. The insurer pays only that
percentage and not the full amount of lost income.
Legal Liability
Covers damage to property of others in the insured's
care, custody and control.
Extra Expense
Covers business continuation at another location
while repairs from a covered loss are occurring at
the insured premises-rent, phone installation,
mailings to customers about temporary relocation,
etc.
There are two basic ways that Extra Expense
Insurance can be provided. Extra Expense can be
written as a separate Coverage Form or it can be
provided in combination with Business Income
Insurance. The most common way to provide Extra
Expense is in combination. One of the advantages
of the combination form is that it does not have
Limits on Loss Payment which has often been
referred to as the 40/80/100 clause.
Percentage availability (40/80/100)
The ISO form states:
We will not pay more for Extra Expense than the
percentages shown in the Declarations times the
Limit of Insurance.
When the period of restoration is:
a) 30 days or less, the first percentage applies
b) 60 days or less, but more than 30 days, the
second percentage applies
c) More than 60 days, the third percentage
applies
Using the 40/80/100 as applicable percentages, on
first read the policy appears to be saying that the
most an insured can collect the first month of their
loss is 40% of the limit. Reading more closely, that
is not what the form says at all. It says when the
period of restoration is less than 30 days then the
insured can only collect the 40% of the loss. Stated
differently, if the insured's loss lasts more than sixty
days to repair or replace so that the insured is
operational, then the insured is entitled to 100% of
the amount of Extra Expense loss they are able to
prove. The intent of the limits of loss payment is to
limit the amount of Extra Expense if the loss is
minor in nature.
Causes of Loss Forms: Basic,
Broad and Special
For a loss to be covered, it must exceed the
deductible stated in the Declarations section, but be
less than the Limit of Insurance-the amount between
the two is the covered amount. Also, there may be
deductions for any co-insurance or Agreed Value
coverage provision.
When the loss or damage from any one occurrence
involves two or more items of covered property and
more than one Limit of Insurance, the deductible is
applied to the total amount of loss, as long as loss to
at least one item is less than the total or sum of the
Limit of Insurance on that item plus the Deductible.
The CPP uses the same three covered peril forms as
the HO and Dwelling policies: The Basic Form, the
Broad Form, and the Special Form.
1. The basic form-includes fire, lightning,
windstorm, hail, explosion, vandalism,
COMMERCIAL INLAND MARINE
Historically, inland marine coverage started after the
development of the railroad, trucks, and airplanes in
52 CPMI Professional Development, Inc.
smoke, sprinkler leakage, riot or civil
commotion, sinkhole collapse, volcano.
2. broad form-includes perils found under the
basic form plus falling objects causing
exterior damage that results in interior
damage; weight of ice, sleet, and snow;
accidental discharge of water or steam from
a system or appliance containing steam or
water, but not including an automatic
sprinkler system; and breakage of glass;
subject to a $500 maximum limit.
3. special cause-of-loss form-includes all
direct accidental losses except those
specifically excluded in the policy (such as
flood, war, wear and tear, and earth
movement).
Selected Commercial Property
Endorsements
Ordinance or Law
This endorsement covers loss of value or damage to
an undamaged portion of a building, demolition and
removal of undamaged parts of the building, and
any increased costs of repairs due to civil building,
zoning or land use law changes.
Spoilage
If endorsed to the policy, the Spoilage endorsement
covers perishable stock for damage resulting from a
mechanical breakdown, a power outage, or a
refrigerant contamination.
Peak Season Limit of Insurance
This seasonal endorsement allows additional
amounts of personal property coverage during
designated periods such as Christmas or other
holidays when inventory levels are increased.
Value Reporting Form
The Value Reporting Form allows an insured that
has property that fluctuates in value to pay premium
on an average value for the entire policy year.
Periodic updated value reports are filed with the
insurer to keep the property completely insured with
no penalties in the event of a loss.
order to cover inland transportation, as opposed to
ocean marine coverage for ocean-bound ships. It
covers property on land that is mobile and away
from the owner's premises. Major forms include:
Common Carrier
Trucker's
Shipper's
Owner's
Transit forms
Nationwide Marine Definition
The standard for inland marine coverages, the
Nationwide Marine Definition includes six coverage
types:
1. personal property floaters and pleasure craft
2. commercial property coverages, including the
contractor's equipment floater
3. domestic shipments (trucking)
4. instrumentalities of transportation
communication
5. imports
6. exports.
Commercial Inland Marine
Conditions Form
Contains the agreed upon legal obligations and
duties of the insurer and the insured. The same as
the CPP Conditions form.
Inland Marine Coverage Forms
Accounts Receivable
Covers amounts due the insured that are not
collectible from customers because of direct
physical loss to accounts receivable records because
of fire or other insured perils.
Bailee's Customer
Covers damage to or loss of a customer's goods
regardless of the Bailee's (insured's) liability.
Businesses such as laundries or dry cleaners would
have need of Bailee's customer coverage.
Commercial Articles
Covers cameras, musical instruments, projection
machines, film and related equipment and
accessories of others while in the insured's care,
custody and control being used for a commercial or
professional purpose.
53 CPMI Professional Development, Inc.
Commercial/Contractor's Equipment
Floater
Covers contractor's equipment either on or off
premises.
Electronic Data Processing
Provides all-risk coverage for loss of computer
programs, data or media. all-risk refers to all risks
except those expressly excluded.
EDP policies provide special peril coverage
similar to that provided by special property forms,
PLUS coverage for all electrical and magnetic
damage, mechanical breakdown and often
temperature and humidity changes as well.. Some
insurers include the perils of electrical and magnetic
damage, mechanical breakdown and often
or temperature and humidity changes in the basic
form, while others make them available by
endorsement for an additional premium.
Equipment Dealers
Insures the stock in trade of the insured that consists
mainly of mobile agriculture and construction
equipment and similar property of others in the
insured's care, custody and control, not including
autos, trucks, motorcycles, aircraft, or watercraft.
Exclusions:
Mysterious disappearance
Shortages found at inventory
Water damage
Loss caused by artificially generated current
Installation Floater
Covers machinery and equipment that are to be
installed in a building while in-transit and while
being installed. Further coverage on this floater may
vary with individual companies.
Some floaters, for example, include coverage for
collapse of a building or structure, which is a
definite plus, particularly for contractors involved in
the repair or refurbishing of television or
communication towers. Some floaters also provide
coverage for testing, debris removal, pollution
cleanup, and soft costs, such as:
delay in completion of work,
loss of use, and
extra expenses.
At what point coverage ends under an installation
floater also is an important consideration. It is not
unusual for coverage to end when construction by
others continues for long periods.
Jeweler's Block
Covers a jeweler's stock consisting mainly of
jewelry, precious and semi-precious stones, precious
metals and alloys, and similar property of others in
the insured's care custody and control. This
includes that which is held for sale, on exhibit, in
transit by common carrier, or that which is in the
custody of an outside salesperson.
Claims are settled for the lesser of:
actual cash value
cost to restore to prior condition
immediately before the loss
cost to replace the property
the lowest figure in the insured's books and
records showing the property's value.
Sentimental, antique, or historic value is not
considered in claim payment.
Coverage is suspended if protective
safeguards such as security alarms that are
required in the policy are not in active
working order. Coverage resumes when the
devices are working again.
The insured must take inventory every 12
months detailing purchases, sales records,
and keep the records for 36 months after the
policy ends.
Signs
Covers the insured's signs and similar property of
others in the insured's care, custody and control.
Camera & Musical Instrument Dealers
Form
Covers the insured's merchandise of cameras and
musical instruments and related or similar
equipment of others in the insured's care, custody,
and control.
Valuable Papers and Records
Covers such items as deeds, abstracts, mortgages,
books, manuscripts, files, maps, drawings and other
records that are important to the continuation of the
insured's business, whether owned by the business
or the property of others in the insured's care,
custody and control.
54 CPMI Professional Development, Inc.
Transportation Coverages
Inland marine policies also contain transportation
coverages for those firms that carry cargo or
merchandise from one location to another.
Common Carrier Cargo Liability
Also known as Transit Coverage policies, common
carrier cargo liability policies cover legal liability
for damage to goods the carrier carries with only a
few exceptions, those being acts of God and acts of
a public enemy (war). Order of public authority
could also exclude liability if the authority were to
cause problems with roads or dams that cause the
ruin of the cargo.
Neglect of the Shipper
Excludes the carrier from liability in the event the
shipper did not pack the cargo well.
Inherent Vice
A characteristic of the merchandise to destroy itself,
such as the spoilage of fresh fruits and vegetables.
Motor Truck Cargo Forms
Forms exist for truckers, shippers, and owners. The
standard form to insure a carrier's liability is the
Motor Truck Cargo Policy-Trucker's form, and it is
usually written on a named-peril basis. It pays
damages only when the trucker is legally obligated
to pay.
Transit Coverage Forms
Inland marine coverage on the insured's property
while in transit over land from one location to
another. These forms can cover property on either
an Annual or a Specific Trip Transit policy.
Released Bills of Lading
A means by which carriers attempt to limit their
liability by specifying a maximum amount for
which the carrier will be held liable. The carrier
often charges a lower rate to those shippers who
accept the limitation and a higher rate to those who
do not accept it. Coverage for the owner of goods
being shipped by common carrier is provided under
a Motor Truck Cargo Policy Shipper's Form or
under a Transit Coverage Form. The Shipper's
version of the form is a property coverage policy.
 EQUIPMENT BREAKDOWN COVERAGE
(Formerly known as Boiler and Machinery)
Historically, Boiler and Machinery (B&M)
coverage began with the inspection and insuring of
steam boilers and eventually expanded to include
other pressure machinery. This form of insurance
provides important mechanical breakdown coverage
generally not available under any other insurance
policy. A Boiler and Machinery policy can protect
an insured against the effects of catastrophic
property loss, such as steam boiler explosion or an
expensive breakdown of machinery and equipment.
It can also protect against the loss of earnings or
income while machinery is being repaired. Today,
Equipment Breakdown coverage includes machines
as diverse as refrigeration and air conditioning
units, deep well pumps, transformers, and turbines.
Equipment Breakdown coverage policies cover
most machines and equipment used to contain
pressure or generate/transmit power and which are
subject to accidental breakdown that could destroy
or damage a large part of the machine.
Parts of an Equipment Breakdown Policy
The Equipment Breakdown policy consists of four
parts:
1. the Declarations Page
2. the Coverage Form
3. the Object Definition Form(s)
4. any applicable endorsements.
Coverages
There are three types of Equipment Breakdown
policies:
1. The Standard Equipment Breakdown
policy
2. Small Business Coverage Form
3. Small Business Broad Coverage Form
Equipment Breakdown policies cover losses caused
by sudden and accidental breakdown or explosion
on a replacement cost basis.
Covered Property
Covered property includes:
1. any building or business personal property
the insured owns
2. any property of others in the insured's care,
custody, or control or for which the insured
is legally liable.
55 CPMI Professional Development, Inc.
Coverage does not include:
1. valve leakage
2. breakdown of structures that support the
equipment
3. something outside the boiler exploding and
causing damage
4. losses caused while the equipment is being
tested
5. loss to adjoining property.
Conditions
Periodic Inspection and the Suspension
Provision
A major part of the Equipment Breakdown policy
still includes the insurer's periodic inspection of
the insured devices. The purpose of this inspection
is to discover dangerous conditions before they
cause an accident; the inspection does not create a
warranty for the equipment. The insurer may
suspend coverage or cancel the policy at any time if
the equipment is found to be in bad or dangerous
condition. This is known as the Suspension
Provision.
Equipment Breakdown
Protection Coverage Form
One or more of the Object Definition Forms must
be included with the policy.
Pressure and Refrigeration Objects Form
Covers boilers, refrigeration units, piping, and air
conditioning units
Mechanical Objects Form
Covers engines, compressors, fans and blowers,
wheels and shafting, and deep-well pumps
Turbine Objects Form
Includes both steam and water turbines
Electrical Objects Form
Covers such things as transformers and rotating
electrical machines.
Comprehensive Coverage Form, Excluding
Production Machinery
Defines all Equipment Breakdown objects that can
be covered, except for production machinery.
Comprehensive Coverage Form, Including
Production Machinery
Defines all Equipment Breakdown objects that can
be covered, including production machinery
Object definition forms are endorsed onto the
standard Boiler and Machinery form, but are
included in both Small Business Equipment
Breakdown coverage forms.
Selected Endorsements
Business Income - Report of Values
Business income is income received for products
sold or for services rendered.
Business Interruption-Insureds must report net
annual sales and other earnings, and profits each
year in order to qualify for this coverage. Form BM
15 31 Business Income-Report of Values may be
provided to the insured as a means of reporting this
information.
Business Interruption, Actual Loss
Sustained Endorsement-Covers the actual
loss of business income as the result of an
accident to a covered object, including extra
expense to reduce or prevent the
interruption.
Business Interruption, Valued Coverage
Endorsement-Pays a specified amount for
each day the business interruption continues
Actual Cash Value
For damaged property not repaired within 18
months of the accident (unless previously agreed to
in writing by the insurer) claim payment will be for
the lesser of the:
1. cost it would have taken to repair OR
2. the property's Actual Cash Value at the
time of the accident.

FARM COVERAGE
While there are still some small family farms in the
United States, most farming done today is big Coverage C Household personal
property
business. Farmers usually need coverage for their
home and personal property as well as for their farm Loss of use
business operations. Aside from a farm dwelling, Coverage D (Additional living
most farms also have a large investment in land, expenses or fair rental
other buildings, and farm equipment that need value)
insurance protection.
Coverage E Scheduled farm
personal property*
Farm Property Coverage Forms Coverage F Unscheduled farm
personal property*
The Farm Property coverage form is similar to that
of a Homeowners Policy and covers buildings and Coverage G Other farm structures
personal property. The difference between the two
*Coverages E and F cover farm machinery
policy types is that business coverage is generally
whether on or away from the described
excluded from a Homeowners Policy but is included
premises. They also include coverage for
in the Commercial Farm Property Policy as
mules, swine, and sheep, but do not cover
coverages E, F and G. Each coverage is available
poultry.
only if there is a limit shown for it in the
Declarations Page of the policy.
Farm Policy Coverages Mobile Agricultural Machinery
Coverage A Dwellings and Equipment Coverage Form
Coverage B Other private Used when machinery and equipment is the only
structures exposure. Provides all-risk coverage for mobile
equipment.

56 CPMI Professional Development, Inc.

 There is an 80% co-insurance clause
Coverage is written on either a blanket or
scheduled form.
Coverage is excluded for irrigation
equipment and for dishonesty of the insured
or the insured's employees or agents.
Livestock Coverage Form
Mainly used when livestock is the only farm
exposure, but also used if it is desirable to write
livestock coverage separately.
Written on a named-peril basis and covers death or
destruction from 11 perils:
1. fire
2. lightning
3. windstorm
4. hail
5. explosions
6. riot
7. collision with vehicles on public roads
except for vehicles owned or operated by
the insured
8. sinkhole collapse
9. volcanic action
10. vandalism
11. theft
Livestock excluded from coverage under this form
include race or show animals, livestock on ranges,
and livestock being transported to, from, or while at
stockyards or commercial feedlots.
Definitions
Custom farming
This is the performance of specific planting,
cultivating, harvesting or similar specific farming
operations by an insured, at a farm that is not an
insured location, when the performance is for, and
under the direction or supervision of, the owner or
operator of the farm or the authorized representative
of the owner or operator. However, custom farming
does not mean:
Operations conducted at a premises rented
to, leased to, or controlled by an insured
Operations for which no compensation in
money or goods is received
A neighborly exchange of services.
Farm employee
This means any insured's employee whose duties
are principally in connection with the maintenance
57 CPMI Professional Development, Inc.
or use of the insured location as a farm. These
duties include the maintenance or use of the
insured's farm equipment. Farm employee does
not mean any employee while engaged in an
insured's business.
Farming
This means the operation of an agricultural or
aquacultural enterprise and includes the operation of
roadside stands on farm premises maintained solely
for the sale of products produced principally on
those premises. Unless specifically indicated in the
Declarations, farming does not include:
retail activity other than that described
above or
mechanized processing operations.
Causes of loss (Basic, Broad and
Special)
The Farm policy uses the same three covered peril
forms as other policies- the Basic form, Broad form,
and Special form, with their specific covered perils.
Conditions
The following conditions apply in addition to
common policy conditions:
Loss Conditions
Bankruptcy
The bankruptcy or insolvency of the insured or of
the insured's estate will not relieve the insurer of its
obligations.
Insured Duties In The Event Of Occurrence,
Offense, Claim, Or Suit
Notice of a claim must be provided to the insurer as
soon as is possible, including
How, when, and where the occurrence took
place;
The names and addresses of any injured
persons and witnesses
The nature and location of any injury or
damage arising out of the occurrence or
offense.
If a claim is made or suit is brought against any
insured, he or she must:
Immediately record the specifics of the
claim or suit and the date received
Notify the insurer in writing as soon as
 possible.
The insured must give the insurer written notice of
the claim or suit as soon as practicable.
In addition, the insured must:
1. Notify the police if a law may have been
broken
2. Immediately send the insurer copies of any
demands, notices, summonses, or legal
papers received in connection with the
claim or suit
3. Authorize the insurer to obtain records and
other information
4. Cooperate with the insurer in the
investigation or settlement of the claim or
defense against the suit
5. At the insurer's request, assist in the
enforcement of any right against any person
or organization that may be liable to the
"insured" because of injury or damage to
which this insurance may also apply.
No insured will, except at that insured's own cost,
voluntarily make any payment, assume any
obligation, or incur any expense, other than for first
aid, without the insurer's consent.
Any injured person who makes a claim for payment
of medical expenses under the provisions of
Coverage J must:
Give the insured written proof of claim,
under oath if required, as soon as
practicable
Execute authorization to allow the insured
to obtain copies of medical reports and
records
Submit to physical examination by a
physician selected by the insurer when and
as often as reasonably required.
Insurance Under Two Or More Coverages
If two or more of a policy's coverages apply to the
same loss or damage, the insurer will not pay more
than the actual amount of the loss or damage.
Legal Action Against the Insurer
A person or organization may sue the insurer to
recover on an agreed settlement or on a final
judgment against an insured, but the insurer will not
be liable for damages that are not payable under the
terms of this Coverage Form or that are in excess of
the applicable Limit of Insurance. An agreed
settlement means a settlement and release of
58 CPMI Professional Development, Inc.
liability signed by the insurer, the insured, and the
claimant or the claimant's legal representative.
No Admission Of Liability With Medical
Payments
No payment we make under the Medical Payments
provisions of Coverage J constitutes an admission
of liability by any insured or the insurer.
Other Insurance
This condition applies only if, in addition to the
insurance provided under a Coverage Form, the
insured has other insurance under any other policy
covering the same obligations to pay damages and
provide defense against suits for damages.
The insurer will pay only the proportion of covered
damages and related defense costs that the
applicable Limit of Insurance under this Coverage
Form bears to the total amount of all your insurance
providing the same coverage, in covered
occurrences arising from any cause except the
ownership, maintenance, use, operation or loading
or unloading of a:
Motor vehicle
Vehicle which qualifies as mobile
equipment only while used on premises the
insured owns or rents
Watercraft.
Transfer of Rights of Recovery Against Others
to the Insurer (Subrogation)
If the insured has rights to recover all or part of any
payment the insurer has made under this Coverage
Form, those rights are transferred to the insurer. The
insured must do nothing after loss to impair them.
At the insurer's request, the insured will bring suit
or transfer those rights to the insurer and help
enforce them.
Liberalization
If the insurer adopts any revision that would
broaden the coverage under a coverage form
without additional premium within 45 days prior to
or during the policy period, the broadened coverage
will immediately apply to the Coverage Form.
Representations
By accepting a policy, the insured agrees:
1. the statements in the Declarations are
accurate and complete
2. the statements are based upon
representations made to the insurer
 3. the insurer has issued the policy in reliance
upon the insured's representations.
Separation Of Insureds
Except with respect to the limits of insurance, and
any rights or duties specifically assigned in a
coverage form to the first named insured, this
insurance applies:
1. as if each named insured were the only
named insured
2. separately to each insured against whom
claim is made or suit is brought.
Exclusions
This insurance does not apply to:
1. Expected Or Intended Injury
2. Contractual Liability
3. Pollution
4. Release Or Discharge From Aircraft
5. Aircraft, Motor Vehicle, Motorized
Bicycle, Or Tricycle
6. Bodily injury or property damage:
a) arising out of ownership, maintenance,
use, or entrusting to others of any
aircraft, motor vehicle, motorized
bicycle or tricycle owned or operated
by or rented or loaned to any insured.
Use includes operation and loading or
unloading
b) giving rise to vicarious liability,
whether or not imposed by law, for the
actions of a child or minor involving
any aircraft, motor vehicle, motorized
bicycle or tricycle.
7. Watercraft
Bodily injury or property damage:
a) arising out of ownership, maintenance,
use, or entrusting to others of an
excluded watercraft. Use includes
operation and loading or unloading
b) giving rise to vicarious liability,
whether or not imposed by law, for the
actions of a child or minor involving an
excluded watercraft.
Excluded watercraft are those that are
principally designed to be propelled by
engine power or electric motor or are
sailing vessels, whether owned by or
rented to an "insured".
8. Mobile Equipment
Bodily injury or property damage
arising out of:
59 CPMI Professional Development, Inc.
a) the transportation of mobile equipment
by a motor vehicle owned or operated
by, or rented or loaned to, any insured
b) the use of any self-propelled land
vehicle, or mobile equipment in, or
while in practice or preparation for, a
prearranged racing, speed, strength, or
demolition contest or in any stunting
activity.
9. Use of Livestock or Other Animals
Bodily injury or property damage
arising out of the use of any livestock or
other animal:
a) in, or while in practice or preparation
for, a prearranged racing, speed or
strength contest, or prearranged
stunting activity.
b) with or without an accessory vehicle,
for providing rides to any person for a
fee or for providing rides in connection
with or during a fair, charitable
function, or similar type of event.
10. Business Pursuits
Bodily injury or property damage
arising out of or in connection with a
business engaged in by an insured. This
exclusion applies but is not limited to an
act or omission, regardless of its
nature or circumstance, involving a
service or duty rendered, promised,
owed, or implied to be provided because
of the nature of the business.
11. Custom Farming
Bodily injury or property damage
arising out of the insured's performance
of, or failure to perform, custom
farming operations.
(This exclusion applies only when
receipts from custom farming
operations exceed $5,000 for the 12
months immediately preceding the date of
the occurrence.)
12. Professional Services
Bodily injury or property damage
arising out of the rendering of, or failure
to render, professional services.
13. Rental of Premises and Ownership or
Control of Premises
Bodily injury or property damage
arising out of:
a) an act or omission in connection with
any location (other than an insured
location) that is rented to, or owned or
controlled by, the insured.
 b) The rental or holding for rental of an
insured location.
14. Communicable Disease
15. Workers Compensation or Similar Law
16. Employers Liability
Bodily injury sustained by:
a) any employee (other than a residence
employee) as a result of his or her
employment by the insured
b) any residence employee, unless the
employee makes a written claim or
brings suit no later than 36 months after
the end of the policy period
c) the spouse, child, parent, brother or
sister of any employee as a
consequence of bodily injury to that
employee.
This exclusion applies whether the
insured may be held liable as an
employer or in any other capacity and to
any obligation to share damages with or
repay someone else who must pay
damages because of the injury.
17. Building / Structure Under Construction
Bodily injury arising out of any
premises on which a building or
structure is being constructed.
The only exception to this exclusion is in
an occurrence of bodily injury sustained
by:
a) persons who are not insureds
b) residence employees of an insured
arising out of or in the course of their
employment.
18. Bodily Injury to An Insured
19. Damage to Property
20. Damage to Your Product
21. Damage to Your Work
22. Damage To Impaired Property Or Property
Not Physically Injured
Property damage to impaired property or
property that has not been physically
injured, arising out of:
a) a defect, deficiency, inadequacy or
dangerous condition in your product or
the insured's work
b) a delay or failure by the insured or
anyone acting on his or her behalf to
perform a contract or agreement in
accordance with its terms.
23. Recall of Products, Work, or Impaired
Property
Damages claimed for any loss, cost or
expense incurred by you or others for the
60 CPMI Professional Development, Inc.
loss of use, withdrawal, recall, inspection,
repair, replacement, adjustment, removal or
disposal of the insured's:
a) product
b) work
c) impaired property
if such product, work, or property is
withdrawn or recalled from the market or
from use, by any person or organization
because of a known or suspected defect,
deficiency, inadequacy or dangerous
condition in it.
24. Sexual Molestation, Corporal
Punishment Or Physical Or Mental
Abuse
25. Controlled Substances
26. Personal Injury
Limits
1. The Limits of Insurance shown in the
Declarations and the provisions below fix
the most the insurer will pay regardless of
the number of:
a) insureds
b) claims made or suits brought
c) persons or organizations making claims
or bringing suits
2. The General Aggregate Limit is the most
the insurer will pay for the sum of:
a) damages under Coverage H and
Coverage I.
b) medical expenses under Coverage J.
3. The Each Occurrence Limit is the most the
insurer will pay for the sum of:
a) damages under Coverage H
b) medical expenses under Coverage J
because of all bodily injury and property
damage arising out of any one occurrence.
All bodily injury and property damage resulting
from any one accident or from continuous or
repeated exposure to substantially the same general
harmful conditions will be considered to be the
result of one occurrence.
Included within the Each Occurrence Limit is a
special Limit of Insurance of $10,000, which is the
most the insured will pay for all covered damages
that the insured becomes legally obligated to pay
because of statutorily imposed vicarious liability for
the actions of a child or minor.
 Additional Coverages
As with other real property policies, farm policies
also include coverages for such things as:
Debris removal
Fire department charges
Cost to restore farm records
Limited coverage For Fungi and Bacteria
for Property, Farm, Dwellings, Appurtenant
61 CPMI Professional Development, Inc.
Structures and Household Personal Property
Liability coverage
Farm Umbrella Coverage
An umbrella policy adds additional liability or
excess coverage for $1 million or more, over and
above the basic liability limits of an underlying
policy.
 SECTION V - COMMERCIAL PROPERTY POLICY REVIEW QUESTIONS
1. If the insured desires coverage for business did not pack the cargo well?
continuation at another location while a) Motor Truck Cargo-Shipper's form
repairs from a covered loss are being b) Neglect of the Shipper
completed, they should purchase which of c) Inherent vice
the following coverages? d) Released Bills of Lading
a) Business Income
b) Commercial Property 7. An insured's air conditioning unit would be
c) Extra Expense covered under which of the following
d) No coverage is offered for indirect Object Definition Forms?
losses. a) Mechanical Objects
b) Turbine Objects
2. Which of the following is NOT an optional c) Pressure and Refrigeration Objects
part of a Commercial insurance policy? d) Electrical Objects
a) Commercial Policy Conditions
b) Commercial Property 8. WE R Growing, Inc. recently bought an
c) Commercial General Liability additional building. How much coverage is
d) Boiler & Machinery automatically extended to the new building
on their Commercial Property coverage
3. Boiler & Machinery coverage covers all of form?
the following except: a) Up to 10% of the Commercial
a) deep well pumps. Buildings amount
b) periodic inspections of the insured b) Up to 50% of the Commercial
devices. Buildings amount
c) transformers. c) Up to $100,000
d) loss caused while the unit is being d) Up to $250,000
tested.
9. Farmers can insure their crops through all
4. Showplace Windows has large plate glass of the following EXCEPT:
windows to show off its merchandise and a) crop hail insurance.
has only the Commercial Property coverage b) unscheduled farm property insurance.
form. How much will the insurer pay if the c) the FCIC.
glass is damaged by fire? d) multi-peril crop insurance.
a) $100/pane with a maximum of $500
b) $100/pane with no limit to the 10. Krismis Goodies has increased merchandise
aggregate amount in stock in November and December of
c) The full amount of the loss each year. What coverage would give them
d) $0--no glass coverage unless the the best coverage for their stock during this
insured purchased a Glass Coverage period of time?
Form policy a) Commercial Property
b) Peak Season
5. If the insured works on the property of c) Value Reporting
customers that it holds in its premises, d) Personal Effects
which of the following would BEST protect
the insured against damage to the 11. Which of the following is protected under
customer's property? the Inflation Guard provision of the
a) Personal Article Floater Commercial policy?
b) Bailee's Customer a) Seasonal stock variations of up to 25%
c) Commercial Articles b) Increases in building valuation of up to
d) Contractor's Equipment 10% per year
c) Increases in the insured's stock value
6. Which of the following would exclude a due to the purchase of an additional
carrier from liability in the event the shipper facility

62 CPMI Professional Development, Inc.

d) Guaranteed replacement cost of the
insured merchandise.

63 CPMI Professional Development, Inc.

 Section VI - Business Owners Policy (BOP)
CHARACTERISTICS AND PURPOSE
Why Needed?
Commercial package policies are designed for large
businesses. They cover a wide variety of risks and
options that may occur with business changes and
growth. Smaller businesses do not meet the
eligibility requirements of the Commercial Package
Policy, nor do they have the need for many of the
coverages, yet these small businesses have special
needs that must be met.
What is a BOP?
The Business Owners Package Policy, or BOP, is
for smaller businesses and is primarily designed for
small, one-location risks. They are commercial
package policies that provide both property and
liability coverage to certain types of small
businesses. It is a package of coverages that will
serve the needs of most small businesses.
Employing the homeowners approach, the BOP
provides extensive building and business personal
property coverages and broad liability insurance. It
is unique in that it basically includes coverage for
loss of earnings, due to insured hazard, on an
actual loss sustained basis.
Eligible Businesses
Insurers consider a number of factors when deciding
to write BOPs, including:
1. the type of business
2. the size of the premises
3. the required limits of liability
4. the extent of offsite activity
Premiums for BOP policies are based on business
location, financial stability, building construction,
security features, and fire hazards in addition to the
above factors.
Risks covered by the BOP include the following:
businesses with fewer than 100 employees
and less than $1 million in revenue
apartment buildings that may also contain
offices and certain service and mercantile
occupancies
eligible office buildings for the BOP 2002
are those that-
are principally for office purposes
64 CPMI Professional Development, Inc.
are no more than six stories and have
less than 100,000 square feet of floor
space
may contain apartments and certain
wholesale, service, or processing
incidental occupancies that do not
exceed 25,000 square feet
restaurants (such as delis, cafes, pizza
parlors, etc.) limited to fast food types up to
7,500 square feet-beer and wine sales (only)
are permitted but limited to25% of gross
sales
convenience stores with gasoline pumps
gas sales are limited to 75% of gross
sales
no auto services, restaurant, or propane
or kerosene dispensing is permitted
laundries and dry cleaners
motels not exceeding three stories and not
including a bar or a lounge
contractors-carpenters, electricians,
painters, plumbers, etc.
self-storage facilities (excluding industrial
storage) not exceeding two stories
Ineligible Businesses
Certain categories of risks are ineligible for
Business Owners policies. They include the
following:
large premises operations
businesses whose majority of operations are
conducted off-premise
automobile-type businesses-dealers,
garages, repair shops, parking lots, etc.
places of amusement
bars, grills, and restaurants (unless within
eligibility guidelines)
financial institutions
manufacturing or processing risks (unless
within eligibility guidelines)
one or two family dwellings
household personal property
high risk or highly specialized operations
businesses that require higher liability limits
than those offered in a BOP.
 BUSINESS OWNERS POLICY (SECTION I) PROPERTY
Coverages and 15 others:
1. Wear & tear
2. Rust, corrosion, fungus, decay,
BOP Policy/Cause of Loss Forms and deterioration, and hidden or latent defects
Coverages 3. Smog and other pollution
1. Standard Form (Named peril) 4. Settling, cracking, or expansion
Covered losses include: 5. Damage from birds, insects, rodents or
Fire animals
Lightning 6. Dishonest or criminal acts of the insured or
Explosion his employees
Windstorm or hail 7. Voluntary parting with property through
Aircraft and Vehicles fraud
Riot or civil commotion 8. Rain, snow, sleet, or ice damage to personal
Vandalism and Malicious Mischief property that is not in a building
Sprinkler leakage 9. Collapse
Sinkhole collapse 10. Faulty planning, workmanship, or repair
Volcanic action 11. Smoke, vapor, or gas
Transportation damage to property in 12. Frozen plumbing
transit 13. Weather conditions that contribute to
2. Special Form (Open-peril/All-risk) causing a loss
14. Loss resulting from acts or decisions or the
Exclusions failure to act or decide
15. Consequential losses caused by delay, loss
of use, or loss of market.
BOP Standard Form Exclusions (13)
1. Ordinance or law
2. Earth movement Deductibles
3. Government action
4. Nuclear hazard The standard deductible on the BOP is $500, but
5. Utility failure occurring away from the other deductibles may be chosen.
insured's premises
6. War
7. Water, such as flood and sewer backup
Loss Conditions
8. Artificially generated electrical current
Unless a dollar limit has been specified in the
9. Water pipe rupture or bursting
declarations, business income or loss of income
10. Leakage or discharge of water or steam
coverage provided by a business owners policy
caused by breakdown of water or steam
basically covers the actual loss sustained by
system or appliance, or mechanical
interruption of operations during the period of
breakdown
restoration that occurs within 12 consecutive
11. Consequential loss that causes extra
months following the date of direct physical loss or
expenses or increases in loss of income
damage. Co-insurance does not apply.
12. Failure of computers to recognize a
particular date or time (i.e. the year 2000).
BOP policies cover extra expenses the insured
13. Loss to valuable papers, records and
incurs following a loss, and this helps the business
accounts receivables due to the insured's
resume normal business activities. It also means
dishonest or criminal acts
that less pure income is needed for the use of
employees.
BOP Special Form Exclusions Major insurers use all-purpose time element
The BOP Special Form is an all-risk policy and forms (a product that addresses business
covers any risks that are not listed as exclusions. interruption underwriting problems and loss
Exclusions include the standard form exclusions experience) to provide the earnings protection

65 CPMI Professional Development, Inc.

needed by most businesses, eliminating a number of Policy Period, Coverage Territory Condition
forms previously used for the purpose. As an A loss must occur during the policy period and in
automatic feature, this business income insurance the policy's coverage territory of the U.S. or its
includes rental value coverage by virtue of territories, Puerto Rico or Canada in order to be
generalization of terms and extra expense coverage, covered.
without monthly limits. These forms are designed
for the vast majority of businesses for which
earnings loss is the primary time element risk.
Optional Coverages
The following are included in the BOP, but only
General Conditions apply if particulars are noted in the Declarations
page and extra premium is paid:
BOP conditions consist of: Outdoor signs
policy cancellation or changes Exterior Glass
concealment Interior Glass
misrepresentation or fraud Employee Dishonesty
insurer's right to examine company records Mechanical Breakdown
and to hold inspections and surveys Burglary and Robbery
policy liberalization procedures Money and Securities
premium amounts
subrogation BOP Additional Coverages
other insurance provisions (Subject to policy limits)
Debris removal
Inflation Guard Provision Property preservation
Increases building coverage by 8% each year. Fire department service charge
Business Personal Property can be increased Loss of business income and extra expense
by up to 25% to provide for seasonal stock Pollutant cleanup and removal
variations. Order of civil authority
Money order and counterfeit currency
The Control of Property Condition Forgery and alteration
States that a negligent act of someone
beyond the insured's direction or control BOP Extended Coverages
will not affect coverage. Personal property at a newly acquired
If the insured violates contract conditions at premises: up to $10,000 coverage
one location, coverage to other locations Personal property off-premises (i.e., at a
will not be affected. storage facility): up to $5,000 coverage
Outdoor property up to $1,000 coverage
Legal Action Against the Insurer Provision with a $250 limit for any one tree, shrub or
Limits the insured's right to bring action against the plant
insurer for damages to two years if the insured has Valuable papers and records: up to $1,000
complied with policy conditions and the insurer has coverage
not indemnified the insured for direct physical loss.

66 CPMI Professional Development, Inc.

 BUSINESS OWNERS POLICY (SECTION II) - LIABILITY
Business Liability
Business Liability-$300,000 limit
Medical Expense-$5,000 limit per person
Fire-Legal Liability-$50,000 limit
Policy Aggregate Limit-Two times the
business liability and medical expense
liability limit for all damages or injuries that
happen during the policy period.
Products and Completed Operations liability is
separate from other liability limits.
Medical Expenses
Medical Expenses have a $5,000 limit per person.
Conditions
Like those of the CPP, BOP conditions consist of:
policy cancellation or changes
concealment
misrepresentation or fraud
insurer's right to examine company records
and to hold inspections and surveys
policy liberalization procedures
premium amounts
subrogation
other insurance provisions.
Exclusions
BOP Standard Form Exclusions
Ordinance or law
Earth movement
Government action
Nuclear hazard
Utility failure occurring away from the
insured's premises
War
Water, such as flood and sewer backup
Artificially generated electrical current
Water pipe rupture or bursting
Leakage or discharge of water or steam
67 CPMI Professional Development, Inc.
caused by breakdown of water or steam
system or appliance, or mechanical
breakdown
Consequential loss that causes extra
expenses or increases in loss of income
Failure of computers to recognize a
particular date or time (i.e. the year 2000).
Loss to valuable papers, records and
accounts receivables due to the insured's
dishonest or criminal acts
BOP Special Form Exclusions
The BOP Special Form is an all-risk policy and
covers any risks that are not listed as exclusions.
Exclusions include the standard form exclusions
and 15 others:
1. Wear & tear
2. Rust, corrosion, fungus, decay,
deterioration, and hidden or latent defects
3. Smog and other pollution
4. Settling, cracking, or expansion
5. Damage form birds, insects, rodents or
animals
6. Dishonest or criminal acts of the insured or
his employees
7. Voluntary parting with property through
fraud
8. Rain, snow, sleet, or ice damage to personal
property that is not in a building
9. Collapse
10. Faulty planning, workmanship, or repair
11. Smoke, vapor, or gas
12. Frozen plumbing
13. Weather conditions that contribute to
causing a loss
14. Loss resulting from acts or decisions or the
failure to act or decide
15. Consequential losses caused by delay, loss
of use, or loss of market.
Definitions
Insured
The business, its owner(s) and employees acting in
the course of employment and under the direction of
the company are considered insureds under a BOP.
BUSINESS OWNERS POLICY (SECTION III) - COMMON POLICY CONDITIONS
BOP Cause of Loss Form & Coverages
1. Standard Form (Named peril) Selected Endorsements
Covered losses include:
Fire
State Changes
Lightning
If a state's requirements differ from the policy
Explosion
wording or change during the policy period, the state
Windstorm or hail regulations take precedence. The policy changes to
Aircraft and Vehicles meet the state regulation, whether the written policy
Riot or civil commotion is changed or not. This is automatically included on
V&MM policies.
Sprinkler leakage
Sinkhole collapse Protective Safeguards
Volcanic action Rather than a coverage in itself, the Protective
Transportation damage to property in Safeguards endorsement lists the protective devices
transit or services the insured must maintain as a condition
2. Special Form (Open-peril/All-risk) for coverage. The insurer will not pay for loss if the
insured failed to keep the protective safeguard in
BOP Additional Coverages working order or if he didn't notify the insurer the
Subject to policy limits, but includes: device was not working properly.
Debris removal
Property preservation The following device classifications apply:
Fire department service charge 1. P-1 Automatic Sprinkler System
Loss of business income and extra expense 2. P-2 Automatic Fire Alarm System
Pollutant cleanup and removal 3. P-3 Security Service
Order of civil authority 4. P-4 Service Contract for a privately owned
Money order and counterfeit currency fire department
Forgery and alteration
Utility Services-Direct Damage
BOP Extended Coverages Replacement Cost Coverage
Personal property at a newly acquired Covers loss or damage to scheduled property caused
premises: up to $10,000 coverage by an interruption in water, communication or power
Personal property off-premises (i.e., at a service. The cause of the loss must be one of the
storage facility): up to $5,000 coverage policy's covered perils.
Outdoor property up to $1,000 coverage
with a $250 limit for any one tree, shrub or Utility Services-Time Element Coverage
plant Covers loss of business income and extra expense
Valuable papers and records: up to $1,000 that occurs as a result of utility service interruption.
coverage Again, the cause of loss must be one of the covered
perils.

68 CPMI Professional Development, Inc.

 BOP Eligible Wholesale/Distributor Risks

Auto parts and supplies Fruits & vegetables Jewelry

Baked goods (no baking on premises) Gardening and light farming supplies Meat, fish, poultry & seafood
Barber/beauty shop supplies Groceries Office machines &
appliances
Bookbinding and printers' supplies Hardware and tools Optical goods
Clothing/wearing apparel Hearing Aids Plumbing supplies & fixtures
Coins, stamps & rare books Heating/heating & air conditioning Refrigeration equipment
equipment
Drugs Hobby, model maker and artist supplies Stationery & paper products
Fabrics Household appliances Tobacco
Floor coverings Janitorial supplies Toys
Wholesale florists

BOP Eligible Processing or Service Businesses

Commercial or Household appliances Laundries & dry cleaning stores using Printing
and accessories installation, service, petroleum or synthetic solvents (3 or
or repair fewer receiving stations)
Bakeries with baking on premises Laundries and dry cleaning or dyeing Tailoring/dressmaking establishments
receiving stations
Barber shops Funeral homes/chapels Shoe repair
Beauty shops & hairstyling Lithographing Taxidermists
Dental labs Mailing or addressing companies TV or radio receiving set installation
or repair
Engraving Photocopy services Watch, clock, jewelry repair

Restaurants
Certain fast food and limited-cooking restaurants (No appliances that emit smoke or grease-laden vapors)
Cafes Donut shops Oriental/ethnic restaurants
Caf-style buffets Drive-ins Pizza shops
Coffee shops Drugstores Salad bars
Concession stands Hot Dog & Hamburger stands Take-out only restaurants
Delis/sandwich shops Ice cream/yogurt shops

(Annual sales less than $3 million, Annual payroll under $300,000) that meet certain requirements.
Appliances & accessories
Carpentry
Carpet & furniture cleaning
Concrete construction
Decorative or artistic metal
erection
Driveway, parking area or
sidewalk paving
Electrical work- Inside
Fencing
Floor covering installation
Furniture or fixture
installation
Small Contractors
Glass & glazing Plastering or stucco work
Heating and/or air conditioning Plumbing (non-industrial)
Interior decorating Refrigeration systems
Landscape gardening Roofing
Lawn sprinkler installation Septic tank cleaning
Masonry Siding installation
Metal ceiling/wall installation Sign painting
Metal door, window or assembled Tile or stone work (interior)
millwork installation
Painting Window cleaning--up to 3 stories high
Paper hanging

69 CPMI Professional Development, Inc.

 SECTION VI - BUSINESS OWNERS POLICY REVIEW QUESTIONS
1. A Standard Form coverage offered on a 5. How long a period does an insured have to
BOP policy that is not covered on an HO-2 bring a lawsuit against an insurer for failure
policy is: to provide payment for a covered loss?
a) lightning a) One year
b) fire b) Two years
c) sprinkler leakage c) Three years
d) riot or civil commotion d) There is no time limit.

2. The Common Policy Conditions of the BOP
contains all of the following EXCEPT:
a) co-insurance
b) concealment
c) fraud
d) subrogation
3. All of the following are covered under the
BOP's extended coverages area EXCEPT:
a) $9,000 personal property at a newly
acquired location.
b) $3,000 of personal property being
stored at an off-location unit.
c) $750 for the replacement of a Maple
tree.
d) $1,000 for replacement of valuable
papers destroyed by a covered peril.
6. The Protective Safeguard does not require
that the insured keep which of the following
in working order:
a) Automatic sprinkler system
b) Security system
c) Automatic Fire Alarm system
d) Security Cameras at all entrances
7. Chloe's Rent A Storage Unit facility was
broken into and had some furniture was
stole from their office valued at $3,900. If
they have the BOP standard deductible,
how much will the insurer cover?
a) $250
b) $3,590
c) $3,400
d) $3,900

4. Which of the following is NOT covered by 8. Gas sales are limited to what percent of of
a BOP form? gross sales?
a) Apartment buildings a) 75%
b) A 9-story office building b) 100% in New Jersey
c) A 90,000 sq ft office building c) 33%
d) Apartment buildings with a few small d) 80% in Alaska
retail stores located therein

70 CPMI Professional Development, Inc.

 Section VII - Other Coverages and Options
AVIATION INSURANCE
Aircraft liability coverage is essentially the same as
the coverages in an Auto Policy. The two main
aviation coverages are the Aircraft Hull and Aircraft
Liability policy forms.
Aircraft Hull
Hull insurance can be either all-risk for both on the
ground and in-flight, or it can be written as all-risk
on the ground and limited to only the perils of fire,
OCEAN MARINE INSURANCE
Ocean Marine policies are valued policies. In the
event of a total loss, the entire face amount is
payable without regard for depreciation.
Provides property and liability coverage for all
types of vessels and on their cargoes.
Major Coverages
Hull Insurance
Protects the ship owner against damage to the ship
NATIONAL FLOOD INSURANCE PROGRAM
(NFIP)
Losses caused by storms, earthquakes, and other
natural disasters can cover large areas and impact
large portions of the population. Aside from the
devastation to the population, insurance company
resources and capabilities can be stretched too thin
to handle the claims resulting from such losses. In
such cases the government may step in to help
mitigate damages. Flooding is one such loss that
the federal government has deemed too large for
private insurance companies to handle.
Loss caused by flooding is excluded from coverage
in all fire/property policies.
71 CPMI Professional Development, Inc.
lightning and explosion in flight, and excluding
crash or collision.
Aircraft Liability
Coverage for the insured in the event of the
insured's negligent acts and/or omissions result in
losses in connection with the use, ownership, or
maintenance of aircraft.
itself and is written on a modified all-risk basis. It
includes a running-down clause that also protects
against liability caused by damage to other ships.
Cargo Insurance
Protects the owner of the cargo from loss due to
destruction.
Freight Insurance
Indemnifies the ship owner from loss of income that
would have been earned had the ship completed its
voyage.
Write Your Own versus
Government Flood Insurance
Policies
Flood insurance protection is offered exclusively by
the National Flood Insurance Program and is both
administered and underwritten by the federal
government (FEMA- the Federal Emergency
Management Association). Some insurers sell the
policy on their own paper or letterhead as they do
any of their other policies. This is called "Write
Your Own" flood insurance, but it is actually
covered through the federal government's program.
Flood insurance can be purchased directly from the
NFIP or from any licensed broker. 3. Structures that are mainly containers or
storage units such as gas or liquid storage
Eligibility tanks (silos, grain storage buildings, and their
contents can be covered).
Flood Plain Determination and NFIP
Qualification Coverages
Local municipal or county governments must apply
Damage from high waters
to the federal government for inclusion in the
National Flood Insurance Program (NFIP), and Damage caused by subsidence or erosion
there must be proper zoning, land use laws, and from high waters
building use laws in place. A FIRM map will be Damage from unusual accumulations and
designed to show eligible property zoning. surface runoff

Once an area is determined to be part of a flood
plain, lenders must require flood insurance on any
loan they process for buildings located in that area.
This provision helps the government to maximize
the amount of premiums received to help fund the
plan. Property owners who do not buy flood
insurance are not eligible for full disaster relief
funding in the event of a loss.
Eligible Properties
Most walled and roofed buildings that are fixed to a
permanent site and are mainly above ground are
eligible properties.
Non-Eligible Properties
1. Underground structures and equipment such
as wells and septic tanks
2. Newly constructed buildings that are in, on,
or above the water
Only one building can be insured per policy.
Multiple buildings mean multiple policies.
Limits
When a community first applies for NFIP coverage,
a basic coverage maximum limit is set under the
Emergency Program. The Flood Insurance Agency,
or FIA, then conducts a detailed study of the area
and the plans set forth by the community. The FIA
issues a detailed Flood Insurance Rate Map (FIRM)
that establishes flood zones and rates for the area.
Only after this process does the community enter
the NFIP's regular program with increased
coverages.
Note: There is a standard deductible of $1,000 for
property insured under the NFIP, post-FIRM, or
after the rating map is developed. It is $2,000 pre-
FIRM

Flood Coverages
Emergency Program Regular Program
Buildings
Single Family $35,000 $250,000
2-4 Family Dwelling $35,000 $250,000
Other Residential $100,000 $250,000
Non-residential $100,000 $500,000
Contents
Residential $10,000 $100,000
Non-residential $100,000 $500,000

72 CPMI Professional Development, Inc.

 OTHER POLICIES
Boatowners
Boats and yachts can be insured either as an
extension on a Homeowners policy or on a separate
policy. Coverage included is for:
Damage to the boat, including hull and
propeller damage caused by collision either
while in the water or while the boat is being
transported.
Theft.
RESIDUAL MARKETS INCLUDING FAIR PLANS
Some areas, usually urban, are at high risk for
insurance claims due to increased probability of riot
or other criminal activity, so many insurers reduce
or stop writing insurance in these areas. To make
insurance available to these areas, the federal
government made riot reinsurance available through
the National Insurance Development Fund in the
Urban Property Protection and Reinsurance Act of
1968. This is operated through the federal
government's Department of Housing and Urban
Development, but is administered by the states.
Also called joint underwriting pools, joint
reinsurance pools, the assigned risk pool or the
insurance pool, most states administer the program
in a similar manner and require that all insurers
which offer property insurance in their state be
required to participate in the pool, to the proportion
of their market share of gross premiums written in
the state. Check specifics in your state-specific
books.
Joint Underwriting/Joint
Reinsurance Pool
Insurers in these pools cooperate with each other in
the making of:
rates
rating systems
policy forms
underwriting rules
surveys
73 CPMI Professional Development, Inc.
Liability arising from use of the boat.
These policies are covered in more depth in the
Casualty section.
Difference in Conditions
Difference in Conditions covers, to a specified limit,
any cause of loss that leaves the property in a
different condition than it was before, excluding fire
and extended coverage perils.
inspections and investigations
the furnishing of loss and expense statistics
or other information
or conducting research.
Eligibility
Properties must be located in specific areas.
They must be an insurable risk, i.e., they need
to be structurally sound.
The owner must have made an attempt to
obtain insurance through normal markets and
been refused coverage.
How it Works
1. First a proposed insured applies for coverage
through standard carriers and is turned down.
2. Next the applicant applies for insurance through
the pool by applying to any property insurance
agent or broker.
3. Then the agent submits the application to the
state program and representatives of the state
program inspect the property and determine the
structural soundness and occupancy of the
building.
4. If the risk meets certain state determined
standards, the policy will be assigned to one of
the standard insurers who must accept the risk
as a condition to continue to do business in the
state. The state also determines the rules under
which a company may refuse a risk assigned
under the plan.
 MINE SUBSIDENCE INSURANCE
Mine Subsidence Insurance is coverage for loss
caused by the movement of land underneath a
property.
Mine subsidence is particularly common in areas
where mining is active, or once was active and has
subsequently closed operations. Builders move into
the area and begin construction that may be over
FEDERAL CROP INSURANCE AND THE RMA
Crop insurance is coverage for crops in the case of
loss or insured perils, including hail, lighting,
freezing, fire and wind.
There are three main types of crop coverages:
1. Crop Hail Insurance-Issued for only one
season at a time and covers the marketable
portion of the crop against damage from
hail, fire, lightening and wind. Some state
require that the perils of freezing and frost
be covered as well.
2. Federal Crop Insurance Corporation
(FCIC)-Federal crop insurance has existed
in many forms since 1938. The Federal
Crop Insurance Act of 1980 established a
federal all-risk program. It is an agency of
the U.S. Department of Agriculture and
provides coverage against natural disasters.
Farmers can apply for coverage directly
through the FCIC or purchase multi-peril
74 CPMI Professional Development, Inc.
some of these old abandoned mines.
Mine subsidence may be added by endorsement.
In certain areas where mines have been prevalent,
mine subsidence is automatically added to the
policy unless specifically rejected by the policy
owner.
crop insurance.
3. Multi-Peril Crop Insurance (MPCI)-
Basically the same insurance as FCIC
insurance but is written and serviced by
private insurers and reinsured by those
companies through the FCIC.
Risk Management Agency
(RMA)
A program under the USDA, the RMA provides
insurance for over 100 types of crops.
Federal crop insurance policies usually consist of:
the Common Crop Insurance Policy
specific crop provisions
policy endorsements
special provisions
SECTION VII - OTHER COVERAGES AND OPTIONS REVIEW QUESTIONS
1. The captain of a ship directed his crew to 5. The maximum amount a single-family
throw stowed merchandise overboard in bad residence can be assured under the NFIP is:
seas to save the ship. Which Ocean Marine a) $ 35,000.
policy would indemnify the merchandise b) $100,000.
owner for his loss? c) $185,000.
a) Hull insurance d) $250,000.
b) Freight insurance
c) Cargo insurance 6. Hull insurance can be:
d) Protection and Indemnity a) All risk on the ground
b) All risk in-flight
2. Which of the following is NOT excluded c) Both A and B
from coverage by flood insurance? d) 50% coverage
a) Septic Tanks
b) Corn silos 7. Freight Insurance indemnifies the ship
c) A new rental unit built on top of a dam owner from loss of income that would have
d) A gasoline storage tank on a farmer's been earned:
field a) If the ship owner could have made a
15% profit.
3. FAIR plans are: b) If the ship had completed its voyage.
a) mandated and administered by the c) If the ship only sails in the Pacific.
federal government. d) If the ship owner only owns the one
b) mandated and administered by ship.
individual state governments.
c) mandated by the NAIC and 8. Multi-Peril Crop Insurance is similar to
administered by the state governments. what other type of insurance?
d) mandated by the federal government a) Crop Hail Insurance
and administered by the state b) FAIR Plan
governments. c) Federal Crop Insurance Corporation
d) Homeowners Insurance
4. Juan and Katy's home is built in an area
where mines were dug years ago. The
mines have long since been closed, but
there is the possibility that homes built in
the area may be built over one of these
abandoned mines. What coverage should
Juan and Katy purchase to protect their
home from the risk of sinking into one of
these abandoned mines?
a) Mine subsidence coverage
b) HO-5 Comprehensive coverage
c) Earthquake coverage
d) Sinkhole coverage

75 CPMI Professional Development, Inc.

 ANSWERS TO REVIEW QUESTIONS
Section I - General Insurance
1) D. Because of the Law of Agency, the acts of the
agent are legally considered to be the acts of the
insurance company.
2) A. Frank no longer owned the car and so did not
have a financial interest in the car.
Section II - Property Insurance Basics
1) A. Buildings which have no residents or active
business for more than 60 days are considered
unoccupied. Because Chris left property at the
house, it is not considered vacant.
2) D. Exclusions list the property, perils, and other
hazards not covered by the policy or which have a
reduction of coverage in the policy.
3) A. The Declarations section contains the Who?
(identifies the insureds and the insurer's name &
address), the What? (identifies the real and personal
property insured), the Where? (identifies the
territory covered by the policy), the When?
(identifies the policy period--inception/expiration
dates and times), and the How much? (the amount
of insurance coverage and the premium).
4) B. The Insuring Agreement summarizes covered
risks, additional or supplementary coverages, and
the insurer's responsibility to indemnify against
losses suffered as a result of the perils.
5) C. The assignment clause states that the
insurance policy cannot be assigned/transferred to
another without the insurance company's written
authorization, and an officer of the insurance
company, not the insurance agent, must sign it.
Section III - Dwelling Policy
1) D. To be eligible for a Dwelling policy, there can
be a maximum of four families and five boarders in
the building.
2) D. The factory would bear responsibility for the
76 CPMI Professional Development, Inc.
3) C. Mutual insurers are owned by policyholders
who share profits through dividends.
4) B. Membership in Fraternal Benefit Societies is
based on religious, ethnic, or national lines, and
insurance is only sold to members or their families.
6) C. The Conditions section lists the insured's
responsibilities both at the time of application
(truthful representations in the application and
payment of premium) as well as at the time of loss
(notice of and proof of loss).
7) B. The subrogation clause gives the insurer the
right to pursue any course of action in its own name
or the name of a policy owner against a third party
who is liable for a loss that has been paid by the
insurer. This clause prevents the insured from
collecting from both his insurer and a third party.
8) C. The standard fire policy perils are fire,
lightning, and the removal of property to protect it
from further damage.
9) A. Terrorism is any act that is certified by the
Secretary of the Treasury, in concurrence with the
Secretary of State and the Attorney General of the
United States to be an act of terrorism.
10) D. A vessel based principally in the United
States, on which U.S income tax is paid and whose
insurance coverage is subject to regulation in the
U.S., could be considered the victim of terrorism
and would be an insured loss.
chemical spill.
3) D. Smoke damage is a covered peril. The others
are specific exclusions.
4). A. Industrial Smudging is one of the excluded
perils for broad form.
5) B. The loss payee will be notified in writing
according to the loss payable clause.
6) C. The state's regulations always take
precedence, whether you live in Delaware or any
Section IV - Homeowners Policy
1) C. Functional Replacement Cost is the cost to
repair or replace damaged property with less
expensive but functionally equivalent materials. An
example would be custom woodwork that is
replaced with standard woodwork.
2) C. Market value is the price property would
likely fetch if sold on the market. A home in a
small, remote town would have a similar price to
one in a larger city to rebuild or replace
(Replacement Cost). However, if the house were
sold (Market Value), the price might be
considerably less in the small town because of:
Lower land and property values
Fewer potential buyers for a property in a
small town.
3) A. Personal Property is covered for a stated
amount in a Condo Package.
4) C. Animal coverage is not included in the HO-1
or HO-2, and wild animal coverage is not excluded
in the HO-3 so is therefor covered.
5) A. Separate structures (Coverage B) provides an
additional 10% of the Coverage A amount.
6) D. Mobile homes are treated as personal
property, cannot be covered by a homeowners
policy.
7) B. Loss assessment is an optional coverage that
protects the individual condominium owner from
their share of a pro rata loss assessed by the
association for losses over the amount of the
association's policy, usually in amounts between
$1,000 and $5,000.
77 CPMI Professional Development, Inc.
other state.
7) A. The Dwelling Under Construction form is
also known as the Builder's Risk form.
8) C. Sailboats would be covered under a
Boatowners policy.
8) A. There is a cap of $200 for cash, so there
would be NO claim payment. The lost cash satisfies
the deductible.
9) A. There is no coverage for property left stored
at another residence, though there would be if it
were temporarily stored.
10) D. Incidental service businesses such as beauty
shops, accountants, or music lessons are allowed
under the HO policies, but bakeries are not.
11) C. The special limit of liability for the theft of
jewelry, watches, furs and precious/semi-precious
stones is $1,500.
12) D. HO-8 is used primarily for homes and
structures that might have a replacement cost
greater than the market value.
13) D. This endorsement covers the cost to:
remove the fungi
tear out and replace any part of the building
as needed to gain access to the fungi
test air or property to confirm the absence,
presence, or level of fungi, but only if there
is a reason to believe there is the presence
of fungi, wet or dry rot or bacteria.
But not medical liability issues.
14) A. Functional Replacement Cost covers the
amount to repair or replace a damaged covered
building with less costly common construction
materials and methods that are the equivalent to
obsolete, antique, or custom materials and methods
used in the building's original construction.
 Section V - Commercial Property Policy
1) C. Extra expense coverage covers business
continuation at another location while repairs from a
covered loss are occurring at the insured premises--
rent, phone installation, mailings to customers about
a temporary relocation, etc.
2) A. Commercial Policy Conditions is a
required section of a commercial insurance policy.
3) D. Boiler and Machinery coverage Coverage
does not include losses caused while the equipment
is being tested.
4) C. Commercial Property coverages include glass.
5) B. The Bailee's Customer form covers damage to
or loss of a customer's goods regardless of the
Bailee's (insured's) liability. Businesses such as
laundries or dry cleaners would have need of
Bailee's customer coverage.
6) B. The Neglect of the Shipper form excludes the
Section VI - Businessowners Policy
1) C. Sprinkler leakage is a standard form coverage
under a Business Owners Policy.
2) A. BOP conditions consist of:
Policy cancellation or changes
Concealment
Misrepresentation or fraud
Insurer's right to examine company records
and to hold inspections and surveys
Policy liberalization procedures
Premium amounts
Subrogation
Other insurance provisions
3) C. There is a $250 limit for any one tree, shrub,
or plant.
4) B. Under a BOP, buildings may have no more
Section VII - Other Coverages and Options
1) C. Cargo Insurance protects the owner of the
cargo from loss due to destruction.
2) B. Septic tanks, storage silos, and gasoline
78 CPMI Professional Development, Inc.
carrier from liability in the event the shipper did not
pack the cargo well.
7) C. The Pressure and Refrigeration Objects form
covers boilers, refrigeration units, piping, and air
conditioning units.
8) D. Extension of coverage to newly acquired
property is limited to $250,000, for 30 days.
9) B. Unscheduled farm property insurance is not
an option; the other three are legitimate possibilities
for crop insurance.
10) B. The Peak Season endorsement allows
additional amounts of personal property coverage
during designated periods such as Christmas or
other holidays when inventory levels are increased.
11) A. With the Inflation Guard provision, business
personal property can be increased by up to 25% to
provide for seasonal stock variations.
than six stories.
5) B. The Legal Action Against the Insurer
Provision limits the insured's right to bring action
against the insurer for damages (if the insured has
complied with policy conditions and the insurer has
not indemnified the insured for direct physical loss)
to two years.
6) D. Security cameras are not one of the required
protective safeguards which the insurer requires to
pay for loss.
7) C. Chloe will receive $3,400. The Standard
deductible for the BOP is $500.
8) A. Gas sales are limited to 75% at convenience
stores with gasoline pumps.
storage tanks are not eligible properties under flood
insurance.
3) D. FAIR plans are mandated by the federal
government's Department of Housing and Urban
Development, but is administered by the states.
4) A. Mine subsidence is coverage for loss caused
by the movement of land underneath a property and
therefore the best choice for Juan and Katy.
5) D. The limit for a single-family residence under
NFIP is $250,000.
6) C. Aviation hull insurance can be either all-risk
79 CPMI Professional Development, Inc.
for both on the ground and in-flight.
7) B. Indemnifies the ship owner from loss of
income that would have been earned had the ship
completed its voyage.
8) C. Multi-Peril Crop Insurance is basically the
same insurance as Federal Crop Insurance
Corporation (FCIC) but is written and serviced by
private insurers and reinsured by those companies
through the FCIC.
 Alphabetical Index
1- Offer and Acceptance..........................................16
2- Consideration......................................................16
3- Competent parties................................................16
4- Legal purpose......................................................16
Abandonment..........................................................26
Absolute liability.....................................................21
Acceptance..............................................................16
Accident...................................................................10
Accounts Receivable...............................................53
Act of Terrorism......................................................30
Actual Cash Value..............................................23, 56
Additional Coverages........................................41, 61
Additional Insured...................................................24
Additional Living Expense......................................35
Admitted Insurer......................................................14
Adverse Selection....................................................11
Agreed Value...........................................................23
Agreement...............................................................16
Aircraft Hull............................................................71
Aircraft Liability......................................................71
Aleatory Contract....................................................17
Alien Insurer............................................................14
All-Risk.......................................................35, 39, 42
Apparent authority...................................................16
Applicant.................................................................11
Appraisal & Arbitration...........................................26
Appurtenant Structures............................................34
Assignment..............................................................26
Assumption of Risk.................................................29
attorney-in-fact........................................................13
Automatic Increase in Insurance..............................37
Aviation Insurance...................................................71
Avoidance................................................................10
Bailee's Customer....................................................53
Bankruptcy..............................................................57
Basic Form...............................................................34
Binder......................................................................12
Binders.....................................................................29
binding of coverage.................................................29
blanket policy..........................................................22
Boatowners..............................................................73
Boiler and Machinery..............................................55
BOP.........................................................................64
BOP Additional Coverages......................................68
BOP Cause of Loss Form & Coverages...................68
BOP Extended Coverages........................................68
BOP Special Form Exclusions.................................67
Boycotting...............................................................18
Broad Form........................................................35, 42
Broad Theft Coverage..............................................37
Brokers....................................................................14
Builders Risk...........................................................51
80 CPMI Professional Development, Inc.
Building and Personal Property...............................50
Burglary...................................................................12
Business Income......................................................51
Business Income - Report of Values........................56
Business income is income received for products sold
or for services rendered............................................56
Business Interruption...............................................56
Business Liability....................................................67
Business Owners Policy...........................................64
Business Personal Property Exclusions....................51
Camera & Musical Instrument Dealers Form..........54
Cancellation.............................................................27
Captive Agents.........................................................14
Cargo Insurance.......................................................71
Causes of loss..........................................................57
Causes of Loss.........................................................21
Causes of Loss Forms..............................................52
Certified Loss..........................................................31
Claim Settlement Options........................................26
Claims Handling......................................................26
Classifications of Construction................................22
Co-insurance............................................................11
Coinsurance.............................................................25
Collapse...................................................................41
Commercial Articles................................................53
Commercial Coverage Forms..................................50
Commercial Inland Marine......................................52
Commercial Inland Marine Conditions....................53
Commercial Package Policy....................................49
Commercial Property...............................................50
Commercial Property Conditions.............................50
Commercial/Contractor's Equipment Floater...........53
Common Carrier Cargo Liability.............................54
Common Law Defenses...........................................29
Common Law Fellow Servant Rule.........................29
Common Policy Conditions.....................................68
Common Policy Declarations..................................49
Common Policy Provisions......................................24
Comparative Negligence..........................................29
Completed value form.............................................37
Comprehensive Coverage Form...............................56
Comprehensive Form.........................................39, 42
Concealment............................................................17
Concurrent Causation..............................................39
Conditional Contract................................................17
Conditional Renewal...............................................28
Conditions....................................................23, 44, 57
Condominium Association.......................................51
Condominium Commercial Unit-Owners................51
Condominium Unit Owner Form.......................40, 42
Consequential Loss....................................................9
Contract Legal Interpretations.................................17
Contract of Adhesion...............................................17
Contracts..................................................................16
Contributory Negligence..........................................29
Coverage A........................................................40, 56
Coverage B........................................................40, 56
Coverage C........................................................40, 56
Coverage D........................................................41, 56
Coverage E..............................................................56
Coverage F...............................................................56
Coverage G..............................................................56
Coverages....................................................................
Breakage of Glass by Earth Movement..............41
Insurable interest.................................................20
Judgment Rating.................................................20
Loss ratio............................................................20
Manual Rating....................................................20
Rates...................................................................20
Underwriting.......................................................20
Covered perils..........................................................27
CPP..........................................................................49
Credit Card, Fund Transfer Card, Forgery and
Counterfeit Money...................................................41
Crop Hail Insurance.................................................74
Debris Removal.......................................................41
Declarations.............................................................23
Deductibles........................................................24, 65
Defenses Against Negligence..................................28
Definitions...............................................................34
Determination..........................................................21
Direct and Indirect Losses.......................................21
Direct Mail...............................................................15
Direct Physical Loss..................................................9
Direct Response.......................................................15
Direct Writer............................................................15
Distribution Systems................................................14
Domestic Insurer......................................................14
Duties After a Loss..................................................36
Duty to Defend........................................................26
Dwelling..................................................................40
Dwelling Form Conditions......................................36
Dwelling Policy.......................................................34
Dwelling Under Construction..................................37
Earthquake...............................................................45
Electrical Objects Form...........................................55
Electronic Data Processing......................................53
Elements of a Legal Contract...................................16
Elements of a Negligent Act....................................28
Elements of Insurable Risks.....................................10
Endorsements..............................................................
Functional Replacement Cost.............................46
Identity Fraud Expense.......................................46
Property Remediation for Escaped Fuel..............46
Special Additional Amount of Insurance............46
Windstorm or Hail..............................................46
81 CPMI Professional Development, Inc.
Equipment Breakdown Coverage............................55
Equipment Breakdown Protection...........................55
Equipment Dealers...................................................53
Excess Insurance......................................................25
Exchange of Consideration......................................16
Excluded Perils........................................................43
Exclusions..........................................................34, 43
Exclusive agents......................................................14
Exposure....................................................................9
Express authority.....................................................15
Extended Replacement Cost....................................40
Extra Expense..........................................................51
FAIR Plans...............................................................73
Fair Rental Value..................................................34p.
Farm Coverage........................................................56
Farm Coverage Definitions......................................57
Farm employee........................................................57
Farm Policy Coverages............................................56
Farm Property Coverage Forms...............................56
Farm Umbrella Coverage.........................................61
Farming...................................................................57
FCIC........................................................................74
Federal Crop Insurance............................................74
Federal Crop Insurance Corporation........................74
Fiduciary..................................................................18
Fire-Legal Liability..................................................67
First Named Insured................................................24
Flood Insurance- NFIP.............................................71
Foreign Insurer........................................................14
Fraternal Benefit Societies.......................................13
Fraud........................................................................18
Freight Insurance.....................................................71
Functional Replacement Cost..................................23
Fungi, Wet or Dry Rot, or Bacteria Coverage..........45
General Dwelling Form Exclusions.........................36
General Rules of Agency.........................................15
Government Insurers...............................................14
Grave Markers.........................................................41
Guaranteed Replacement Cost...........................23, 39
Hazard.......................................................................9
Hazards....................................................................21
HO-2........................................................................42
HO-3..................................................................39, 42
HO-4..................................................................39, 42
HO-5..................................................................39, 42
HO-6..................................................................40, 42
Home Day Care.......................................................45
Homeowners Contents.............................................39
Homeowners Contents/............................................42
Hovercraft and Parts................................................43
Hull Insurance..........................................................71
Implied authority.....................................................15
Indemnity.............................................................9, 17
Independent Agents.................................................14
Independent Rating Services....................................14
Indirect.......................................................................9
Indirect Loss..............................................................9
Inherent Vice............................................................54
Inland Marine..........................................................53
Insolvency................................................................27
Installation Floater...................................................53
Insurable Interest.....................................................12
Insurance...................................................................9
Insurance Contract Characteristics...........................16
Insurance Guaranty Association...............................27
Insurance Services Office........................................49
Insurance Under Two Or More Coverages...............58
Insured.....................................................................11
Insured Loss.............................................................31
Insured's Duties after Loss.......................................26
Insurer......................................................................12
Assessment Mutual.............................................12
Multi-Line..........................................................12
Insurer Provisions....................................................26
Insurers....................................................................12
Insuring Agreement.................................................23
Interline Endorsements............................................50
Intervening Cause....................................................29
Intimidation.............................................................18
Jeweler's Block........................................................54
Judgment Rating......................................................20
Larceny....................................................................12
Last Clear Chance....................................................29
Law of Large Numbers............................................11
Legal Action............................................................36
Legal Action Against the Insurer.............................58
Legal Liability.........................................................51
Liability...................................................................12
Fire Legal...........................................................23
Liberalization...........................................................58
Liberalization Clause...............................................26
Livestock Coverage.................................................57
Lloyd's Associations................................................13
Loss...........................................................................9
Loss Assessment Coverage......................................40
Loss Conditions.................................................57, 65
Loss of Use..............................................................41
Loss Payable Clause..........................................27, 36
Loss Valuation.........................................................22
Market Value............................................................23
Market Value/ Modified Coverage Form HO-8.......40
Marketing Systems..................................................14
Mechanical Objects.................................................55
Mechanical Objects Form........................................55
Med payments- No Admission Of Liability.............58
Medical Expenses....................................................67
Medical Payments to Others....................................41
Merit Rating.............................................................20
82 CPMI Professional Development, Inc.
Methods of Handling Risk.......................................10
Mine Subsidence......................................................74
Misappropriation of Funds.......................................18
Misrepresentations...................................................17
Mobile Ag Machinery & Equipment Coverage........56
Motor Truck Cargo Forms.......................................54
Multi-Peril Crop Insurance......................................74
Mutual Companies...................................................12
Mysterious Disappearance.......................................12
Named Insured...................................................24, 26
Named Peril.......................................................21, 39
Nationwide Marine Definition.................................53
Neglect of the Shipper.............................................54
Negligence.........................................................12, 28
No Benefit To the Bailee..........................................27
Non-Admitted Insurer..............................................14
Non-Certified Loss..................................................31
Non-concurrency.....................................................24
Non-reduction of Limits..........................................25
Nonrenewal..............................................................27
Nonresident Agent...................................................15
Occurrence...............................................................10
Ocean Marine Insurance..........................................71
Offer........................................................................16
One or More Coverage Parts....................................50
Open Peril....................................................21, 39, 42
Optional Coverages.................................................66
Ordinance or Law..............................................41, 52
Other farm structures...............................................56
Other Insurance............................................24, 36, 58
Other Structures.......................................................40
Peak Season.............................................................52
Peril.........................................................................10
Perils..................................................................21, 42
Perils Insured Against..............................................34
Periodic Inspection..................................................55
Permitted Incidental Occupancies............................45
Personal Article Floater...........................................45
Personal Contract.....................................................17
Personal Liability.....................................................41
Personal Liability Supplement.................................37
Personal Lines vs Commercial Lines.........................9
Personal Property.....................................................40
Policy Aggregate Limit............................................67
Policy Limits...........................................................25
Policy Period...........................................................24
Policy Territory........................................................24
Policy types.................................................................
Business Owners Package Policy.......................49
Commercial Package Policy...............................49
Mobile Home......................................................46
Pressure and Refrigeration Objects..........................55
Primary Insurance....................................................24
Principal...................................................................15
Private insurers........................................................14
Pro-rata....................................................................25
Producer Authority and Powers...............................15
Producer/Insurer Relationship..................................15
Producers..............................................................14p.
Property and Liability Coverages............................40
Protective Safeguards..............................................68
Purchasing Groups...................................................13
Reasonable Expectations.........................................17
Reauthorization Act of 2007....................................32
Rebating...................................................................18
Reciprocal Insurers..................................................13
Redlining.................................................................18
Reduction.................................................................10
Regulations..............................................................27
Reinsurance.............................................................11
Released Bills of Lading..........................................54
Renter's Coverage..............................................39, 42
Replacement Cost..............................................23, 44
Reporting Form........................................................37
Representations..................................................17, 58
Required Provisions.................................................27
Resale Value............................................................23
Residual Markets.....................................................73
Responsibilities to the Applicant..............................16
Retention.................................................................10
Risk............................................................................9
Risk Management Agency.......................................74
Risk Management Key Terms....................................9
Risk Retention Groups.............................................13
RMA........................................................................74
Robbery...................................................................12
Salvage....................................................................26
Scheduled farm personal property...........................56
Scheduled Personal Property...................................45
Selected BOP Endorsements....................................68
Selected Commercial Property Endorsements.........52
Selected Endorsements................................36, 45, 56
Self-Insurance..........................................................11
Separation Of Insureds.............................................59
Sharing.....................................................................10
Signs........................................................................54
Smoke Coverage......................................................41
83 CPMI Professional Development, Inc.
Special Form................................................35, 39, 42
Special Provisions....................................................45
Special Provisions for States....................................36
specific policy..........................................................22
Spoilage...................................................................52
Standard Fire Policy................................................27
Standard Mortgagee Clause.....................................27
State Changes..........................................................68
State Laws...............................................................27
Stated Amount.........................................................23
Statutes of Limitations.............................................29
Stock Companies.....................................................12
Strict Liability..........................................................21
Subrogation..............................................................26
Supplementary Coverage.........................................24
Syndicate Insurers....................................................13
Tenant Coverage......................................................39
Terrorism Risk Insurance Act..................................30
Theft........................................................................12
Third-Party Provisions.............................................27
Transfer....................................................................10
Transfer of Rights of Recovery................................58
Transit Coverage......................................................54
Transit Coverage Forms...........................................54
Transportation Coverages........................................54
Turbine Objects Form..............................................55
Types of Construction..............................................22
Types of Insurers......................................................12
Unilateral Contract...................................................17
Unoccupancy...........................................................25
Unscheduled farm personal property.......................56
Utility Services........................................................68
Utmost Good Faith..................................................17
Vacancy...................................................................25
Valuable Papers and Records...................................54
Value Reporting Form..............................................52
Valued policy...........................................................23
Vicarious Liability...................................................21
Waiver and Estoppel................................................18
Warranties................................................................17
Water or Steam........................................................43
.................................................................................27