Insurance Policies & Coverage Analysis Flashcards

A building valued at $400,000 is insured for $240,000 under a commercial property policy with an 80% coinsurance clause and a $1,000 deductible. What does the insurer pay on a $40,000 loss?

Answer: $29,000

Required insurance is $320,000, so $240,000/$320,000 × $40,000 = $30,000, minus the $1,000 deductible = $29,000.

Policy A ($100,000 limit) and Policy B ($300,000 limit) both cover the same property with pro rata other-insurance clauses. How much does Policy A pay on an $80,000 loss?

Answer: $20,000

Policy A carries 1/4 of the total $400,000 coverage, so it pays 1/4 of $80,000, or $20,000.

Two liability policies use contribution by equal shares: Policy A has a $50,000 limit and Policy B a $150,000 limit. How is a $120,000 loss split?

Answer: A $50,000; B $70,000

Each pays equally until A's $50,000 limit runs out, then B pays the remaining $20,000, for $70,000 total.

Under an open perils (special form) policy, who generally has the burden of proving that an exclusion applies?

Answer: The insurer

Under open perils coverage, any direct physical loss is covered unless excluded, so the insurer must prove an exclusion applies.

A policy exclusion says it applies to a loss 'regardless of any other cause or event contributing concurrently or in any sequence to the loss.' What is this wording designed to do?

Answer: Override the concurrent causation doctrine

Anti-concurrent causation language excludes the loss whenever an excluded peril contributes, even if a covered peril was also involved.

Under a standard mortgage clause, what happens to the mortgagee's right to recover if the insured intentionally sets fire to the property?

Answer: The mortgagee can still recover if it meets its own policy obligations

The standard mortgage clause creates a separate contract, so the insured's acts do not defeat the mortgagee's recovery.

In most jurisdictions, what does the 'eight corners' rule use to decide whether a liability insurer owes a duty to defend?

Answer: The policy and the claimant's complaint

The duty to defend is decided by comparing the four corners of the complaint with the four corners of the policy.