Insurance Policies and Contracts Flashcards

What does the 'agreed value' provision in a property policy eliminate compared to a standard replacement cost or ACV policy?

Answer: The coinsurance requirement, with the insurer agreeing to pay the stated value in total loss

Under an agreed value provision, the insurer and insured pre-agree on the property's value, and in a total loss the insurer pays that agreed amount without applying coinsurance penalties.

An 'extended reporting period' (tail coverage) under a claims-made policy allows the insured to:

Answer: Report claims after the policy expires for incidents that occurred before expiration

An extended reporting period gives the insured additional time after policy expiration to report claims that arise from incidents that occurred while the policy was in force.

Which of the following is an example of a 'condition' in an insurance policy rather than an exclusion?

Answer: The insured must provide prompt notice of loss to the insurer

Conditions are duties the insured must fulfill to keep coverage in force, such as timely reporting of losses, cooperation with investigations, or paying premiums on time.

When a liability policy contains a 'defense outside limits' provision, defense costs:

Answer: Are paid by the insurer in addition to and separately from the policy's liability limit

Defense outside limits (also called 'supplementary payments' or 'unlimited defense') means legal defense costs do not erode the limits available to satisfy judgments or settlements.

The 'made whole' doctrine in subrogation requires that:

Answer: The insured must be fully compensated for their total loss before the insurer can recover subrogation proceeds

Under the made whole doctrine, an insured who has not been fully compensated for all losses takes priority over the insurer's subrogation claim against any third-party recovery.

A 'per occurrence' limit in a general liability policy means the limit applies to:

Answer: All claims arising from a single event or continuous exposure

A per occurrence limit caps the insurer's payment for all bodily injury and property damage claims stemming from one occurrence, no matter how many claimants are involved.

Which of the following correctly describes the 'principle of indemnity' in insurance?

Answer: Insurance should restore the insured to the same financial position as before the loss, no better

The principle of indemnity holds that insurance is designed to compensate for actual losses, not to allow the insured to gain financially from a covered event.