QUICK NOTES SUPPLEMENTAL STUDY GUIDE FLORIDA

Transcription

1 QUICK NOTES SUPPLEMENTAL STUDY GUIDE FLORIDA A REVIEW SUPPLEMENT FOR THE FLORIDA AGENT S GENERAL LINES (2-20) STATE INSURANCE EXAM (January, 2015 edition) What is Insurance Schools Quick Notes Supplemental Study Guide? Insurance Schools Quick Notes Study Guide is a comprehensive study guide that follows the Pearson Vue state exam content outline and covers every topic listed on the Florida Agent s General Lines Insurance Exam. This supplemental study guide is designed to be used as an adjunct learning tool along with our online practice exam simulator and is not a substitute for the required Florida prelicensing education course. Insurance Schools Quick Notes Study Guide does not meet the Florida prelicensing education course requirement. Excerpts of Florida laws and regulations cited in this study guide have been condensed to emphasize important, testable topics you will see on your state insurance exam. This study guide should not be used as a substitute for competent legal advice. QUICK NOTES - 1

2 GENERAL KNOWLEDGE 1. Types of Property Policies (17% of State Exam) A. Homeowners - Purpose and Eligibility Homeowner policies are a multi-line policy, which means they combine property and casualty coverage in the same policy. They can be written to cover up to a four family structure with no more than 4 roomers or boarders. At least one unit must be owner occupied. Farm property is not eligible. A mobile home can be covered by amending coverage with an endorsement. Coverage Forms: HO-2 (Broad Form); (broad form perils for all property) HO-3 (Special Form); (open peril for structures, broad perils for personal property. HO-4 (Contents Broad Form also known as "Tenants Form"); HO-5 (Deluxe Form-open peril coverage for buildings and contents; HO-6 (Condominium Unit-Owners Form); HO-8 (Modified Coverage Form). (limited perils and ACV on all property) Definitions: Insureds - The named insured plus their spouse who resides there (whether or not the spouse s name is shown on the policy) Relatives of the named insured or the spouse who reside in the household Other persons under age 21 in the named insured s or a resident relative s care Full-time college students who are age 24, and related to the named insured Insured Location - The residence premises, its grounds, others shown on the declaration page, those temporarily used (hotel room), cemetery plots & mausoleums, vacant land and premises rented to the insured for other than business use. Section I - Property Coverages: Coverage A - Dwelling - Covers the dwelling and attached structures (garage, porch) Coverage B - Other structures - Those not attached (garage, shed) Coverage C - Personal property - Covers personal property owned or used anywhere in the world. Coverage D - Loss of use Covers loss of rental income and additional living expenses. approximately 350 practice questions dealing with Homeowners and Dwelling coverages. QUICK NOTES - 2

3 Additional Coverages of the HO Forms at a Glance: Additional Coverage HO-2 HO-3 HO-4 HO-5 HO-6 HO-8 Debris Removal X X X X X X Reasonable Repairs X X X X X X Trees, Shrubs and Other Plants-max X X X X X X $500 per item Fire Department Service Charge-$500. X X X X X X Property Removed- 30 days X X X X X X Credit Card, Fund Transfer Card, Forgery, and X X X X X X Counterfeit Money $500 Loss Assessment by Condo. Assoc.$1,000 X X X X X X Glass or Safety Glazing Material X X X X X X Collapse - abrupt damage X X X X X Landlord s Furnishings - max of X X X X $2500-no theft Building Additions and Alterations X X Ordinance or Law X X X X X Grave markers - $5,000 X X X X X approximately 350 practice questions dealing with Homeowners and Dwelling coverages. QUICK NOTES - 3

4 Section II - Liability Coverages Coverage E - Personal Liability Minimum limit is $100,000. Provides world wide liability coverage for the personal activities of the insured and family members. Provides coverage for certain incidental business activities such as a dance or painting studio, office and daycares. An endorsement is required for some of these activities. A sail boat under 26 feet, 25 horsepower outboard motor boat, rowboat and kayak would be covered for liability. Limited coverage for certain boats rented to the insured. Coverage F - Medical Payments to Others Minimum limit is $1,000 each person per occurrence. Coverage is no-fault medical payments coverage to others. Only invitees are covered, not the insured family or tenants. Example - A neighbor helps the insured lay carpet and is injured while helping. Pays up to three years after the incident. Additional Coverages: Claims expenses Provides $250 per day for insured to attend hearings and trials Premiums on bonds to defend insured Interest on judgment that accrues after the judgment. First Aid - The insurer will pay for first aid expenses incurred by an insured for first aid to others (not an insured). Damage To Property of Others - The insurer will pay up to $1,000 for accidental damage to property of others approximately 350 practice questions dealing with Homeowners and Dwelling coverages. QUICK NOTES - 4

5 Perils Insured Against The Perils of the Different Homeowner Forms Perils Covered HO 2 Dwelling HO3 Personal Property QUICK NOTES - 5 HO 4 Dwelling HO5 Personal Property Fire X Open Open X X Peril Peril Open Peril X X Lightning X X X X X Windstorm X X X X X or Hail Explosion X X X X X Riot or Civil Commotion X X X X X Aircraft X X X X X Vehicles X X X X X Smoke X X X X X Vandalism & Malicious Mischief HO 6 X X X X X Theft X X X X X Volcanic Eruption X X X X X Falling Objects Weight of Ice, Snow, or Sleet Discharge of Water or Steam Sudden, Accidental Rupture Freezing of Plumbing and Related Systems Artificially Generated Electrical Current X X X X X X X X X X X X X X X X X X X X X X X X HO 8

6 Exclusions - War, nuclear hazard, earth movement, neglect of insured, ordinance or law, flood, off-premises power shortages, and intentional acts are examples of some exclusions. Conditions: Insurable interest (must be evident at the time of loss) Insured s duties after a loss (report the claim and provide proof of loss) Loss settlement (can be either repair, or pay at ACV or replacement cost) Loss to a pair or set (Clause that stipulates that partial loss to a pair or set of items will be valued in terms of the lost item, not on the basis of reduced value of the pair or set) Glass Replacement (includes cost of safety glass) Appraisal (either party may request to determine value of claim) Other insurance (participates in the loss) Suit against insurer (must be brought within two years of the claim) Repair or replace option; right of salvage (option of insurer) Loss payment (made on basis of ACV or replacement cost) Abandonment (insured cannot have a loss and abandon property to insurer) Mortgagee Clause (covers insurable interest of mortgage) No benefit to bailee (only covers interest of the insured in property) Intentional acts (always excluded if caused by insured) Selected Endorsements: Earthquake (HO 04 54) - The earthquake endorsement defines a single earthquake as all earthquake shocks occurring within a 72-hour period. The peril of earthquake is defined to include land shock waves or tremors accompanying a volcanic eruption. The type of construction of the dwelling is a significant factor in earthquake rates. Deductibles are expressed as a percentage of the dwelling limit. Identity Fraud Expense (HO 04 55) - Provides reimbursement of expenses incurred as a result of identity theft or fraud. Covered expenses, up to the $15,000 limit, include reasonable attorney fees to defend suits brought by merchants, financial institutions, or collection agencies, costs incurred to re-apply for any loans rejected solely because of incorrect credit information, lost income for time taken to meet with law enforcement officials or complete affidavits (maximum $200 per day; $5,000 total), and charges for long distance calls to report or discuss an actual identity fraud. A $250 deductible applies. Scheduled Personal Property (HO 04 61) - This endorsement covers personal property that requires higher limits or broader coverage. Personal Property Replacement Cost (HO 04 90) - Homeowner forms provide actual cash value coverage on personal property. This endorsement provides replacement cost coverage. approximately 350 practice questions dealing with Homeowners and Dwelling coverages. QUICK NOTES - 6

7 Home Business (HO 07 01) - An endorsement used to cover the unique exposures of a home business. Covers increased contents value, loss of income and broader liability coverages. Personal Injury - This endorsement extends liability coverage to include libel, slander, wrongful eviction, and wrongful arrest and other non-bodily injury offenses. Water Back Up and Sump Discharge or Overflow (HO 23 85) - An endorsement may be attached to provide up to $5,000 of coverage for losses caused by water which backs up through sewers or drains or which overflows from a sump pump, even when caused by mechanical breakdown of the pump. B. Dwelling Policies Purpose and Eligibility - The Dwelling Policy (abbreviated as DP ) usually used to cover landlord property or property that does not qualify for a homeowner policy. No more than four families per structure and roomers and boarders are limited to five. Occupants must purchase their own contents coverage either using a DP form or an HO policy Coverage Forms - Perils Insured Against - Three different DP policies are available: DP-1 Basic, DP-2 Broad, and DP-3 Special. The covered property is the same in all of the forms; the difference is in the perils that are insured. DP-1 Basic - Provides basic perils. When a premium for Extended Coverage perils and VM&M Coverage is shown in the Declarations, these coverages become part of the perils insured against. DP-2 Broad - Covers all the named perils found in the DP-1 Basic including the Extended Coverage perils and vandalism. DP-2 adds the broad perils. DP-3 Special - This form may be called a hybrid form because it uses both perils approaches. The open-peril approach applies to Coverages A-Dwelling and B-Other Structures. The named-peril approach; however, is used for personal property using the broad perils. approximately 350 practice questions dealing with Homeowner and Dwelling Coverages. QUICK NOTES - 7

8 Dwelling Property Perils At-A-Glance: DP-1 (Basic) (Dwelling, Other Structures & Personal Property) OPTIONAL FOR DP-1 ONLY DP-2 (Broad) (Dwelling, Other Structures & Personal Property) Named peril coverage using the broad perils DP-3 (SPECIAL) A combination of open and named peril coverage Fire - Covers unfriendly fires Extended Coverage (EC Perils (listed below) Automatically includes all of the DP-1 perils, the EC perils and VMM Open Perils (Dwelling & Detached Structures) Lightning - Mother Nature s electricity Internal Explosion- a water tank explodes Vandalism & Malicious Mischief (VMM) an endorsement - no coverage if vacant for more than 60 days Plus the Broad Perils (listed below) no need for the VMM endorsement Provides broad (not open) perils for personal property EC Perils W Windstorm C Civil Commotion S Smoke H Hail A Aircraft V Vehicles (not an owners vehicle except under the DP-3) V Volcanic Eruption E Explosion R Riot Broad Perils B Burglary Damage (not stolen property - no coverage if vacant for more than 60 days I The weight of Ice, Snow or sleet (a bowed roof) G Glass Breakage (except when vacant for more than 60-days) A Accidental Discharge or overflow of water or steam (clothes washer, commode overflows, pipe breaks) F Falling Objects (a tree or other object cases loss) F Freezing of Pipes (only if water turned off & lines drained or heat left on) E Electrical Damage (from artificially generated) C Collapse (an abrupt falling down or caving in) T Tearing Apart, Cracking, Burning or Bulging (a hot water tank overheats) QUICK NOTES - 8

9 Property Coverages: Coverage A - Dwelling/residence and any attached structure plus building materials Coverage B - Other structures detached from the dwelling (a garage; storage bldg) Coverage C - Personal Property on the designated premises (optional coverage) (10% worldwide) Coverage D - Fair Rental Value (indirect loss coverage to cover lost rental income) Coverage E - Increased Living Expenses (an indirect loss coverage to pay the extra expenses to live elsewhere while repairs are being performed). This is optional for the DP-1 form for an additional premium. General Exclusions - These perils are excluded in every property loss, whether the policy uses a named-peril approach or an open-peril approach. Water Damage - Including floods from outside sources, whether runoff or overflow. Direct loss by fire or explosion which ensues or results from the water damage or earth movement is COVERED. Intentional losses from the standpoint of the insured Neglect during or after a loss (the insured must protect the property) Earth movement - Earthquakes, landslides, sinkhole collapses, and mine subsidence War - Whether declared or not Increased costs for upgrades required by ordinances when repairing buildings (changes in building codes) Nuclear damage Off-premises power outages that cause loss to an insured (power goes off down the street and the food in the freezer thaws Conditions: Policy Period - States when coverage begins and ends Mortgage Clause - Includes the insurable interest of the mortgage Liberalization Clause - If a form changes enhancing coverage with no additional premium the current policies are also broadened Concealment or Fraud - Coverage will be void before or after the loss Recovered Property - Salvage belongs to the insurer after loss is paid Duties after a Loss - Give prompt notice to insurer, protect the property and provide proof of loss and records when requested by the insurer. Settlement Considerations - Will the ACV or replacement cost apply? Other insurance and service agreements that may apply to the same loss Loss Payable Clause - Covers insurable interest of lender for chattel property Legal Action against Insurer - Provides a time limit to bring a suit against insurer approximately 350 practice questions dealing with Homeowners and Dwelling Coverages. QUICK NOTES - 9

10 Selected Endorsements: Broad Theft Endorsement (DP 04 83) - An endorsement to add theft coverage to which applies on and off the premises Dwelling under Construction (DP 11 43) - The endorsement covers a dwelling under construction with a provision that the insurer must be advised after work is completed. Occupancy of the dwelling is permitted for 30-days after completion. Personal Liability Supplement - This endorsement provides bodily injury and property damage liability coverage, including defense, for premises and personal activities of the insured on a world wide basis. Examples are falling down claims, dog bites, hunting accidents etc. Also includes $1,000 for medical payments on a no fault basis to invitees. C. Commercial Lines 1. Commercial Package Policy (CPP) Components of a Commercial Policy: Common Policy Declarations Apply to all sections of the policy. This includes the Named insured, address, and inception and expiration date of the coverages. Common Policy Conditions Also applies to all of the coverages. Each coverage expands on the conditions. First Named Insured They receive the premium and cancellation notices and are responsible for reporting and the filing of claims. Monoline versus Package Monoline is one policy. A CPP must contain at least two or more coverage parts. 2. Commercial Property Designed to cover risks that do not necessarily qualify for the businessowners policy which will be discussed later. approximately 275 practice questions dealing with Commercial Property and the Business Owners Package policy. QUICK NOTES - 10

11 Commercial Property Conditions (CP 00 90): Control of Property - States that any act of negligence on the part of a person who is beyond the insured's direction or control will not affect the insurance. Legal Action against the Insurer - An insured must have complied with all terms of the policy. The suit must begin within two years following a loss. Other Insurance - If there is other insurance written on the same basis, recovery is pro rated with the other policies. The policy is excess over other insurance when there is another policy covering the same loss. Liberalization - If the insurer provides more liberal coverage by a revision that is introduced during the policy period or in the 45 days preceding the inception date, the revision applies immediately, as long as there is no extra premium involved. Policy Period, Coverage Territory Losses must occur during the policy period and within the covered territory of US, Canada, Puerto Rico and the US territories. Transfer of Rights of Recovery against Others to Us This is also referred to as the subrogation clause where the insurer, after paying the loss, assumes the legal rights of the insured to seek retribution from the party that caused the loss. Concealment, Misrepresentation or Fraud In all the states these acts will usually void coverage. No Benefit to Bailee The policy is for the benefit of the insured and not the bailee. Example: The policy would not pay the dry cleaning fees if the insured s property were destroyed on the premises of the bailee. Cancellation and Non-renewal - Advance notice of cancellation must be sent to the first named insured listed on the declarations page as well as any mortgagees and loss payees. Coverage Forms: Building and Personal Property Form This form describes three items: Coverage A This is the building, additions, maintenance equipment, building materials on the premises, certain appliances, floor coverings etc. approximately 275 practice questions dealing with Commercial Property and the Business Owners Package policy. QUICK NOTES - 11

12 Coverage B This covers the business personal property including property located within 100 feet of the premises. It covers stock; tenant s improvements and betterments, Labor, materials or a service furnished or arranged on personal property of others and insured s interest in leased equipment. Coverage C The insured can cover the property of others in their care, custody or control. An example would be a dry cleaners or machine repair shop. Condominium Association Form - This form covers a condominium association against direct physical loss or damage to buildings, business personal property, and onpremises personal property of others in the care of the association. Condominium Commercial Unit-Owners - This form covers the commercial condominium unit owner's contents, business personal property, and business personal property of others in the unit owner's care. Building coverage is generally excluded. Unit-owner owned fixtures and structural changes are included in the covered property description. The unit-owners coverage form is always excess over a condominium association coverage form that applies to the same property. Business Income Form - This is indirect coverage. It pays only if there is a direct loss to the insured premises. It covers loss of income including loss of rents or tuition income. Coverage does not apply until the period of restoration begins which is 72 hours after the loss. Coverage applies even after the policy expires if the loss occurs before that date. Most purchase the form that includes extra expense coverage. Extra expense coverage insures against the necessary extra expenses during the Period of Restoration that would not have been incurred had there been no underlying property loss. Legal Liability Form This form is used to cover the insured when they are held responsible or could be held legally liable for physical loss to the structure they are renting or leasing. An example is a fire or explosion loss. Extra Expense Form Some risks only purchase this coverage like a hospital. It pays any reasonable extra expenses to keep the business active. Definitions The forms provide the definitions of the covered perils within the listing of the perils. The same is true of the description of property covered. approximately 275 practice questions dealing with Commercial Property and the Business Owners Package policy. QUICK NOTES - 12

13 Causes of Loss Forms: Basic Causes of Loss Form - A named peril form covering 11 covered perils: Fire Lightning Explosion Windstorm or Hail Smoke Aircraft or Vehicles Riot or Civil Commotion Vandalism Sprinkler Leakage (Accidental leakage) Sinkhole Collapse Volcanic Action (every 168 hours is a separate event) Broad Causes of Loss Form Also a named peril form that includes: All the Basic Perils listed above Breakage of Glass as an additional coverage Falling Objects Weight of ice, sleet or snow Water Damage (Accidental discharge or leakage of water or steam as a result of cracking or breaking of a water or steam system or appliance) Collapse as an additional coverage covers collapse of a building caused by: Any perils specified in the policy Hidden decay Insect or vermin damage Weight of people or property Weight of rain on the roof Defective materials or methods used in construction or remodeling Special Causes of Loss Form - Covers against direct physical loss that is not excluded or limited elsewhere in the policy. It is called Open Perils coverage. If the loss is not excluded then it is covered. Flood, earthquake, spoilage are some of the exclusions. General Exclusions Applicable to all Commercial Property Forms - Earthquake or flood, unless fire or explosion ensues; water that runs continuously for more than 14 days (broad and special); acts of civil authority; steam boiler explosion; war; civil authority; and neglect are some general exclusions. approximately 275 practice questions dealing with Commercial Property and the Business Owners Package policy. QUICK NOTES - 13

14 Selected Endorsements: Spoilage (CP 04 40) - This endorsement provides coverage for perishable stock due to power outage, mechanical breakdown or contamination. Earthquake and Volcanic Eruption (CP 10 40) - All earthquake shocks or volcanic eruptions that occur within any 168-hour period are considered to be one occurrence. Flood Coverage (CP 10 65) - However, if the property is eligible for or has a flood policy from the National Flood Insurance Program, the coverage on this endorsement is considered to be excess over the NFIP maximum limits. Ordinance or Law (CP 04 05) - Provides an additional limit of coverage for the increase in the cost of construction following a covered loss due to ordinance or law regulations. 3. Businessowners Policy (BOP) The BOP is designed to be written on small to medium size business risks. Unless otherwise indicated, 35,000 square feet is the largest area the risk can occupy and its annual gross sales cannot exceed $6,000,000. Eligible Risks: Apartment Buildings (including residential condominium associations) Office Buildings (including office condominium associations) that are occupied principally for office purposes. The building may be no more than 6 stories high and contain no more than 100,000 square feet. Other Buildings (occupied principally for certain wholesale, mercantile, service, or processing purposes.) Unless otherwise noted, eligible risks cannot exceed 35,000 square feet in total floor area, or exceed $6,000,000 in annual gross sales at each location. Businessowners Property Coverage: Coverage An unendorsed BOP provides open peril coverage on both the structures and contents. Coverage includes property of others. It also includes loss of income for up to 12 months on a loss sustained basis. Causes of Loss Open peril coverage unless endorsed to named peril coverage approximately 275 practice questions dealing with Commercial Property and the Business Owners Package policy. QUICK NOTES - 14

15 Exclusions Enforcement of law or ordinance; power failure; war and military action; dishonest or criminal acts by the insured or anyone else with an interest in the property; continuous or repeated seepage or leakage of water that occurs over a period of 14 days or more; wear, tear and deterioration; rust, mold, decay, hidden or latent defect or any quality in property that causes it to damage or destroy itself; settling, shrinking, cracking; explosion of steam boilers, steam pipes, steam turbines; rain, snow, ice or sleet to property in the open; flood and earthquake; false pretense; mysterious disappearance; pollution and neglect are a list of most of the exclusions. Limits of Insurance states the maximum limits that can be paid. The building limit will automatically increase by 8% unless a different percentage amount of annual increase is shown in the declarations. The business personal property limit shown on the declarations will automatically increase by 25% for seasonal variations in stock unless another percentage amount is shown on the declarations. But this increase will only apply if the limit of insurance shown for the business property is at least 100% of the average monthly values during the last 12 months. Deductibles - The standard deductible is $500 that can be increased. Loss Conditions - Basically the same as in commercial property coverage. General Conditions: The insured can cancel the policy at any time The insurer can cancel - must be based on state law. Insurer can also cancel the policy if the building has been vacant or unoccupied 60 or more consecutive days. Buildings with 65% or more of the rental units or floor area vacant or unoccupied are considered vacant under this provision. Changes to the policy must be in writing Concealment or fraud will void the policy Examination of Books and Records - The insurer may examine and audit the insured s books and records as they relate to the policy at any time during the policy period and up to three years afterwards. Inspections and Surveys - Insurer has this right Insurance Under Two or More Coverages The insurer will not pay more than the actual amount of loss or damage. approximately 275 practice questions dealing with Commercial Property and the Business Owners Package policy. QUICK NOTES - 15

16 Liberalization Clause broaden coverage under the policy without additional premium within 45 days prior to or during the policy period Other Insurance - If there is other insurance covering the same loss or damage, the insurer, (under the BOP) will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance. Premium Notices - These are sent to the first named insured at their last known address and are responsible for the payment of all premiums. Premium Audit Some premiums are based on auditable factors Transfer of Rights of Recovery Against Others to the Insurer - This is sometimes called the subrogation clause. Insurer seeks recovery. Assignment and Transfer of Your Rights and Duties Under This Policy - The rights under the policy may not be transferred to someone else without the written consent of the insurer except in the case of the death of the insured. Optional Coverages: Outdoor Signs - A specific limit can be provided to cover outdoor signs. Money and Securities - Covers theft, meaning any act of stealing, disappearance or destruction. Employee Dishonesty - Covers loss due to the dishonest acts of employees. Mechanical Breakdown - The insured can purchase equipment breakdown coverage to cover certain types of equipment as well as boilers. Hired and Non-owned Auto Liability Endorsement - Provides either or both non-owned or hired auto coverage for the named insured. Non-owned auto liability provides coverage for any auto that is not owned, borrowed or hired by the insured. It does not cover the owner of a non-owned or hired vehicle. Hired auto liability provides coverage for autos leased, hired or borrowed by the insured. This endorsement is not available to insured s that have a policy covering other commercial automobile exposures and does not require a mandatory audit by the insurance company. Earthquake Endorsement - Covers damage caused by earthquakes. approximately 275 practice questions dealing with Commercial Property and the Business Owners Package policy. QUICK NOTES - 16

17 Utility Services Direct Damage Coverage Endorsement - Covers loss or damage to property caused by an interruption in water, communication or power supply service. Utility Services Time Element Coverage Endorsement - Is similar to the above, except it covers loss of business income and extra expense that occurs due to an interruption in utility service. The Protective Safeguards Endorsement - Requires the insured to maintain the protective devices or services listed on the endorsement on specified property as a condition of the policy. This would include maintenance of a sprinkler system. The insurer will not pay for fire damage losses if the insured failed to keep the protective safeguard in working order or did not notify the insurer that the device was not working properly. When an automatic sprinkler system is shut off due to breakage, leakage, freezing, or opening of sprinkler heads, the insurer does not have to be notified if the system can be restored within 48 hours. Additional Coverages The BOP has several enhancements: Debris Removal - This is part of the coverage limit unless the insured exceeds their building or business personal property limit. If this occurs, the policy pays an additional $10,000. The expenses are covered only if reported to the company in writing within 180 days of the loss. Preservation of Property (30 days for property removed) Covers business personal property against any direct damage for 30 days. Fire Department Service Charge - Up to $2,500. Business Income - Extra Expense (for up to 12 months) - The coverage starts after a 72 hour waiting period which is also when the period of restoration begins. Ordinary payroll expenses are only paid for 60 days. Pollution Clean Up and Removal - Provides up to $10,000 coverage for the costs to extract pollutants from land or water at the insured s premises as a result of a covered direct loss. The expenses are covered only if reported to the company in writing within 180 days of the loss. approximately 275 practice questions dealing with Commercial Property and the Business Owners Package policy. QUICK NOTES - 17

18 Civil Authority - Pays loss of income that the insured sustains due to actions of civil authorities that prohibit access to the insured premises because property other than at the insured premises was damaged by an insured peril. Coverage begins 72 hours after the action by the civil authority and is available for up to four consecutive weeks. Extra expense is not subject to the waiting period and ends after four weeks or when the civil authority business income ends, whichever is later. Limited Coverage for Fungi, Wet Rot, Dry Rot and Bacteria from other than fire or lightning for certain specified perils. This coverage is limited to $15,000. Note: If the loss is caused by fire or lightning, then coverage is provided without this limitation. Collapse Applies to specified causes of loss resulting in an abrupt falling down or caving in of the structure or a part of the structure. Fire Extinguisher Systems Recharge Expense - Pays up to $5,000. Electronic Data - Pays up to $10,000 as a result of a covered cause of loss. Business Income From Dependent Properties - Pays up to $5,000 due to a direct loss to a dependent property that causes a business income loss to the insured. A supplier or major customer of the insured would be an example of a dependent property. Money Orders and Counterfeit Currency - Pays up to $1,000. Forgery or Alteration - Pays up to $2,500. Increased Cost of Construction pays up to a maximum of $10,000. Extensions of Coverage These are in addition to other covered property. 1. Newly Acquired or Constructed Buildings - 30 days of coverage subject to limitations. The maximum limit is $250,000 at each building. 2. Newly Acquired Business Personal Property - If the insured carries contents coverage, newly acquired personal property at another location is covered for $100,000 for a period of 30 days. 3. Personal Property Off Premises - Provides up to $10,000 coverage for business personal property anywhere in the coverage territory in transit or at premises not owned, leased or operated by the insured. approximately 275 practice questions dealing with Commercial Property and the Business Owners Package policy. QUICK NOTES - 18

19 4. Outdoor Property - Covers outdoor fences, radio and television antennas (including satellite dishes), signs, (other than signs attached to buildings), trees, shrubs and plants subject to the specified perils of fire, lightning, explosion, riot or civil commotion or aircraft. The most the policy will pay for loss or damage under this extension is $2,500, but not more than $1,000 for any one tree, shrub or plant. This does not include trees, shrubs or plants that are part of a vegetated roof as these are already considered to be covered property. 5. Personal Effects - Covers personal effects of the insured and employees including temporary or leased workers. Does not cover loss or damage by theft. The limit is $2, Valuable Papers and Records - Provides $10,000 in coverage to replace valuable papers and records as a result of a covered direct loss and $5,000 for loss to valuable papers not at the described premises. Additionally, the coverage includes the cost to replace or restore as well as research lost information. The definition of valuable papers and records includes those on electronic media. 7. Accounts Receivable Coverage - Provides $10,000 for this coverage for on-premises and $5,000 off the insured s premises. Coverage is triggered when a covered peril destroys the insured s accounts receivable records. The insurer pays those amounts that are uncollectible due to the destruction of records by a covered peril. 8. Business Personal Property Temporarily in Portable Storage Units A limit of $10,000 of coverage is provided for business personal property temporarily in storage units (including detached trailers) for a period of 90 consecutive days. Coverage does not apply under this extension if the storage unit itself has been in use at the described location for more than 90 consecutive days. In this case, permanent coverage would need to be purchased. Coverage applies if the storage unit or detached trailer containing the business personal property is within 100 feet of the buildings or structures or the premises described in the Declarations. Definitions These are imbedded in the terms used in the various sections of the policy. Businessowners Liability Coverage Form: Coverages Provides the same coverages as the CGL policy. Exclusions Lists basically the same exclusions as the CGL policy. Who is an insured Follows the CGL form. approximately 275 practice questions dealing with Commercial Property and the Business Owners Package policy. QUICK NOTES - 19

20 Limits of Insurance - The policy includes a minimum of $300,000 of coverage per occurrence. Higher limits are available for additional premium subject to company specific underwriting guidelines and premiums. A separate limit applies to Medical Payments to Others as well as Damage to Premises Rented to You (previously known as Fire Damage Legal Liability ). The BOP also has two separates sets of aggregate limits. One applies to Products and Completed Operations and the other to all bodily injury and property damage (not including Products/Completed Operations) or Damage to Premises Rented to You losses. The aggregate limits are twice the per occurrence and medical payment limits. General Conditions Follows the CGL form Definitions Follows the CGL form Businessowners Common Policy Conditions Form: Refer to common conditions discussed above. Selected Endorsements: Hired Auto and Non-Owned Auto Liability - New York (BP 04 36) - Provides either or both non-owned or hired auto coverage for the named insured. Non-owned auto liability provides coverage for any auto that is not owned, borrowed or hired by the insured. It does not cover the owner of a non-owned or hired vehicle. Hired auto liability provides coverage for autos leased, hired or borrowed by the insured. Named Perils (BP 10 09) This endorsement is used to convert the property coverages from open peril coverage to named peril coverage. Fire Lightning Volcanic action Windstorm Civil commotion Smoke Hail Aircraft Sprinkler leakage Sinkhole collapse Vandalism & malicious mischief Vehicles Volcanic Eruption Explosion Riot Transportation Covers damage, while insured property is in transit, by: Collision, derailment or overturn of a vehicle; Stranding or sinking of vessels; or Collapse of bridges, wharfs, docks, etc. approximately 275 practice questions dealing with Commercial Property and the Business Owners Package policy. QUICK NOTES - 20

21 4. Builders Risk Builders Risk Form (CP 11 21) Usually written on a completed value basis where the insured is required to choose a limit equal to 100% of the value of the anticipated cost of the structure. Coverage is written for one year, but ends when: the property is accepted by the buyer; 90 days has elapsed since construction was completed; the building is occupied or put to its intended use; the insured's interest in the property ceases; or the insured abandons the construction with no plans to complete it. D. Inland Marine 1. Personal Articles floaters The inland marine policies were developed from the ocean marine policies, which provided broad coverage for property transported over water. The inland marine policies, also called "floaters", give open peril coverage for "portable" property with a worldwide territory (except for fine arts). Fine arts are limited to the United States, its territories or possessions, Puerto Rico and Canada. Although homeowner policies cover a broad range of personal property exposures of individuals and families, there are limitations for many items of personal property. Homeowner policies place dollar limits on certain categories of property. Insurers often will provide the scheduled personal property endorsement to better cover these exposures. However, an insurer may use a separate, stand-alone personal inland marine form. This endorsement provides coverage for nine categories: Jewelry Furs and garments trimmed principally with fur Cameras Musical Instruments Silverware Golfer s Equipment Fine Arts Postage Stamps Rare and Current Coins approximately 100 practice questions dealing with Personal and Commercial Inland Marine. QUICK NOTES - 21

22 Personal Property Floaters: There are three personal property floaters used as stand-alone coverage policies: 1. Personal Articles Floater The personal articles floater is virtually identical to the scheduled personal property endorsement that can be added to a homeowner policy. It does, however, add a few additional categories of property. This is the most popular of the three personal property floaters. Most companies require an appraisal in order to develop an accurate description and proper value for the property. Newly acquired property of the same category currently on the policy is automatically covered for 30 days from the time of acquisition. The automatic limit is 25% of the amount of insurance for the class of property involved or $10,000, whichever is less. There are two personal article floater coverage forms: The ACV form covers these items at the time of loss on an actual cash value basis. For example, a person has insured a silverware collection for $10,000 but suppose the price of silver has declined by 30%. At the time of loss, the total collection would be worth $7,000. The agreed amount form covers these items for the agreed amount limit indicated on each scheduled item. Using the example above, the agreed amount is $10,000 and the insured will receive this amount in case of a loss. If values increase or decrease due to market changes, the insured s limit stays the same The personal articles floater, whether in the form of an endorsement or a separate policy, covers property against direct damage. The property that is eligible for coverage includes the types of valuable property associated with family and home life, specifically: Jewelry Furs and garments trimmed principally with fur Cameras Musical Instruments Silverware Golfer s Equipment Fine Arts Postage Stamps Rare and Current Coins Bicycles Wine The above classes of property are those most frequently insured on a schedule. Scheduling allows for property to be covered for its full value, based upon relevant documentation such as a current appraisal or sales receipt. approximately 100 practice questions dealing with Personal and Commercial Inland Marine. QUICK NOTES - 22

23 2. Personal Property Floater The personal property floater provides open peril coverage on an unscheduled basis for basic categories of personal property with a separate limit of insurance for each category. This form is commonly used when the insured, for whatever reason, does not carry a homeowner policy. Any particularly valuable property can be scheduled separately. 3. Personal Effects Floater - This form is designed to insure personal effects (items usually worn or carried) while traveling or vacationing Pair and Set Clause - The pair and set clause that is contained in most property policies is also in all of the personal property floaters. The insurer is not liable for the entire value of a set when only part of it is damaged. There are two settlement options the insurer may use: Repair, replace or restore the set; or Pay the difference between the actual cash value of the set before and after the loss. Loss Settlement Options: Loss Settlement - Without the Agreed Amount Form Except for fine arts, stamp collections, wine and coin collections, covered property losses under a personal articles floater policy or scheduled personal property endorsement are settled on the basis of the least expensive of the following options: The actual cash value of the property at the time of loss or damage The reasonable cost to repair or restore the property to its pre-loss condition The reasonable cost to replace the lost or damaged article with a substantially identical piece The applicable insurance limit In light of the above settlement option, property values are determined at time of loss or damage rather than upon any agreed value. Fine Arts Fine arts losses are settled according to the insurance limit shown for each scheduled article; in other words, an agreed value. In case of loss to a pair or set, the insurer agrees to pay the full amount of the set as shown in the schedule. When full value has been paid on a damaged set, the insured must surrender the remaining article or articles of the set to the insurer. Loss Settlement - With the Agreed Amount Form On scheduled property the insurer will pay the agreed amount shown for each item indicated when the agreed amount clause applies. This is the amount agreed to as the value of the article or item. approximately 100 practice questions dealing with Personal and Commercial Inland Marine. QUICK NOTES - 23

24 2. Commercial Property Floaters Inland Marine coverages may be categorized as controlled or non-controlled. A controlled line is written using a standardized form that is filed for uniform use. Rates are filed as well. A non-controlled line is one that can be written by individual companies using their own form and varying it for the individual risk. Some of the more commonly used forms are as follows: Annual Transit Policy It is a non-controlled form of protection for the frequent shipper of goods. It can be written a named peril or open form basis to cover the perils of transportation. Trip Transit Policy It is a non-controlled form designed to protect single shipments of specifically described property from one point to another. Motor Truck Cargo Policy It is a non-controlled form which covers cargo while it is being transported in a truck. It protects the carrier, instead of the shipper, for liability for loss to domestic shipments in transit. There are only a few things, such as acts of God (floods, tornadoes) or the shipper s own neglect (poor packing), for which the carrier is not liable. Free on Board (FOB) shipping point - Means that the title to property in transit transfers to the buyer the moment it leaves the shipper. Free on Board (FOB) destination point - Means that the title to property in transit remains with the shipper until it arrives at the buyer s destination point and has been accepted by the buyer. These clauses in the cargo policy will determine where the responsibility lies for damage to cargo in transit. Coverage for Instrumentalities of Transportation & Communication - This coverage is non-controlled and provides for damage to bridges, tunnels, dams, pipelines, piers, docks, radio, TV towers, and satellite dishes. While this property is not portable, it does have a direct connection with transportation or communication, and is subject to many of the same perils. Contractor s Equipment Coverage Form A non-controlled form designed to insure various types of construction equipment used by contractors. Commercial Articles Coverage Form may be used to insure the interests of the owner of commercial cameras, musical instruments and related equipment. approximately 100 practice questions dealing with Personal and Commercial Inland Marine. QUICK NOTES - 24

25 Accounts Receivable Coverage Form A controlled form which covers sums due the insured from customers that are not collectible due to loss, damage, or destruction of accounts receivable records. The coverage also applies to expenses to reestablish the records, if possible, and collection expenses that are in excess of normal. Valuable Papers and Records Form A controlled form which provides coverage for inscribed, written, or printed documents, manuscripts or records, including abstracts, books, deeds, drawings, films, maps or mortgages. It does not cover money and securities. Installation Coverage Form A controlled form which covers property sold by the insured that must be transported to another location and installed before the purchaser accepts it. Sign Coverage Form - A controlled form exists for insuring the value of signs, including neon, fluorescent, automatic or mechanical signs. Electronic Data Processing (EDP) Forms - An increasingly important coverage today is insurance for electronic data processing equipment and media. This coverage can be very important since it covers both hardware and software. Bailees Forms - A bailment is the delivery of property, by the owner, to someone else to be held by the bailee for some special purpose, and then returned to the owner. If the property is damaged while in the custody of the bailee, the bailee will be held liable for damages. An example would be a dry cleaner. Jewelers Block Coverage Form A bailee form which covers the insured's merchandise held for sale and customers' property. But it has some additional features as well, such as multiple types of transit coverage and coverage for property in showcases. An extension of coverage is provided for theft damage to buildings. The form is designed for the jeweler which maintains an average inventory of $250,000 or less. The form does not cover property: Sold under a deferred sales payment agreement after it leaves the insured ' s premises; At an exhibition promoted or financially assisted by a trade association or public authority; Exhibited in showcases or show windows away from the premises; or While being worn by the insured, an employee or a family member of either (does not apply to watches worn solely for purposes of adjustment). approximately 100 practice questions dealing with Personal and Commercial Inland Marine. QUICK NOTES - 25

26 Other Dealers Forms policies written for specific types of dealers include: furriers, art, coin and stamp, musical instrument and equipment dealers. These policies cover merchandise on an all risk basis, both on and off the premises, while in transit, and in the custody of employees. Coverage may extend to the insured s property as well as to property of others. 3. Nationwide Definition The definition lists six categories of eligible risks under Marine insurance: 1. Imports; 2. Exports; 3. Domestic shipments; 4. Instrumentalities of Transportation or Communication; 5. Personal Property Floater Risks; 6. Commercial Property Floater Risks E. National Flood Insurance Program Flood insurance may be purchased for a one year period. The normal waiting period for coverage is 30 days from the date the application and premium are sent to the NFIP. The exception to this 30 day rule is when an insured is closing on a loan and flood coverage is required. The coverage can be bound as of the date of the closing. Both building and contents coverages have deductibles. The standard deductible is $2,000 under the emergency program and $1,000 under the regular program. The $2,000 deductible under the emergency program can be reduced to $1,000 by paying an additional premium. The two programs are discussed later. The deductibles apply separately to each building loss and to each contents loss. Higher deductibles are available. Definition of Flood - Flood, as used under the NFIP, means: 1. A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from: Overflow of inland or tidal waters; Unusual and rapid accumulation or runoff of surface waters from any source; Mudflow which is defined as a river of liquid and flowing mud on the surfaces of normally dry land areas, as when earth is carried by a current of water. approximately 30 practice questions dealing with Flood Coverage. This is out of nearly 2,500 total questions. QUICK NOTES - 26

27 2. Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as described above. It is important to be careful not to confuse mudflow and mudslide. Flood insurance will cover mudflow but not mudslide. It can sometimes be difficult to determine how much damage was caused by mudflow versus mudslide. Eligibility - Any owner of property (real and personal) in an approved community is eligible for flood insurance including: Owners of residential and commercial buildings; Condominium Associations; Builders of a building in the course of construction; Tenants of buildings for their personal property. There are two programs provided by the National Flood Insurance Program (NFIP): 1. Emergency Program - goes into effect as soon as a community has applied to the NFIP to be a designated flood zone and has met its land use control requirements stipulated by the federal law. Rates are subsidized by the federal government under the Emergency Program, and the following are the only limits offered: a. Building: Single Family $ 35,000 Other residential $100,000 Non-residential $100,000 b. Contents (per unit): All residential $ 10,000 All non-residential $100, Regular Program - goes into effect after the land use control requirements are met and a rate study of the community has been made. Rates are no longer subsidized and the following limits are offered: a. Building: One to four family or condominium $250,000 Other residential (5 or more families) $250,000* Non-residential (commercial) $500,000 b. Contents (per unit) All residential $100,000 Non-residential (commercial) $500,000 *The maximum limit was increased to $500,000 effective June 1, approximately 30 practice questions dealing with Flood Coverage. This is out of nearly 2,500 total questions. QUICK NOTES - 27

28 Other Provisions - Single family dwellings (other than mobile homes) are the only buildings that may be insured on a replacement cost basis under a flood policy. Replacement cost coverage is automatically provided when the building is insured for at least 80% of its replacement value or for the maximum amount of insurance allowed by the flood program. All other losses are paid on an actual cash value basis. Debris removal expenses are covered if the amount of expenses plus the amount of direct loss do not exceed the policy limit. Loss Avoidance Measures such as sandbags, supplies and labor up to $1,000 if used to protect property from a flood or imminent danger of flood or if a legally authorized official issues an evacuation order or civil order calling for measures to preserver life and property from flood. $1,000 is also available for the reasonable expenses incurred to move insured property to another location to protect it from the peril of flood. Both of these loss avoidance measures will reduce the amount of coverage limits available on the policy for direct damage to covered buildings. Flood Forms - The NFIP program consists of three forms. There is the dwelling form, used with one-to four-family dwellings and eligible manufactured housing. It is also used to insure a unit within a residential condo building. The residential condominium building association policy (RCBAP) is used to insure residential condos (and commonly-owned contents) not in the Emergency Program. Finally, the general property form is used for commercial establishments, residential condos in the Emergency Program, timeshare buildings not in the condo style of ownership, and cooperative buildings. The chief difference among the forms is that the dwelling form and RCBAP allow replacement cost, while the general property form settles loss strictly on an actual cash value basis. Increased Cost of Compliance - Increased cost of compliance, or coverage for the consequential loss brought on by a flood plain management ordinance or law affecting the repair and reconstruction of a flood-damaged structure, became mandatory as of June 1, 1997 on all flood policies except for those in the Emergency Program or those insuring contents only. The limit of liability is $30,000 per building, with a premium not to exceed $75 and is an additional coverage over and above the policy limit for buildings. There is no deductible on this additional coverage. Write Your Own Program - NFIP Policies may be sold by private insurance companies through the FIA s Write Your Own Program. Under this system, the FIA sets rates, eligibility requirements and coverage limitations. The participating insurer collects premiums and pays for losses out of these premiums. If the amount of losses exceeds the amount of premium collected, the FIA pays the difference. If the insurer collects more in premiums than it pays out in losses, the excess must be returned to the government. approximately 30 practice questions dealing with Flood Coverage. This is out of nearly 2,500 total questions. QUICK NOTES - 28

29 F. Others 1. Earthquake Homeowner and commercial property forms exclude loss caused by earthquake, but earthquake coverage may be added by endorsement. When earthquake coverage is purchased, an additional charge is made for the coverage. The endorsement defines a single earthquake as all earthquake shocks occurring within a 72-hour period. In commercial property forms the time limit is 168 hours. The peril of earthquake is defined to include land shock waves or tremors accompanying a volcanic eruption. The type of construction of the dwelling is a significant factor in earthquake rates. The deductible is stated as a percentage of the Coverage limit. For example, if a home insured under Coverage A for $100,000 with a 5% earthquake deductible suffers an earthquake loss, the deductible will be $5,000 (5% of the $100,000 dwelling limit). 2. Mobile Homes There are several insurers that write a stand alone mobile home policy as a package of coverages similar to a homeowner policy. ISO has an endorsement that amends coverage under a HO policy to cover mobile homes. Mobile homes may be covered by the H0-2, H0-3 or HO-5 form when the mobile home endorsement MH 0401 is attached to the policy. Coverage is subject to all the applicable provisions of the Homeowners form except: Definition of Residence Premises Refers to the mobile home and other structures on land owned or leased by the insured. The mobile home must be designed for yearround living and not less than 10 feet in width and 40 feet in length. This is replaced on the Homeowners form by the definition of a mobile home. A structure used as a permanent dwelling usually connected to utilities and designed without permanent foundation. Dwelling - Coverage A that applies to the mobile home on the residence premises shown in the Declarations. This includes structures and utility tanks attached to the mobile home and items installed on a permanent basis, including floor coverings, appliances, dressers and cabinets. Other Structures - Which is Coverage B, provides 10% of Coverage A, or minimum of $2,000 if less. Property Removed - If the insured mobile home is endangered by an insured peril and removal of personal property is necessary to avoid damage, the policy will pay up to $500 (can be increased for additional premium) for expenses to remove and return the covered property. Section I - Conditions - If the 80% to value is carried, replacement cost applies to all property under Coverage A, which includes replacement cost for carpeting and household appliances. QUICK NOTES - 29

30 Mobile Home Transportation Coverage Endorsement - The transportation/permission to move endorsement (MH 04 03) gives coverage for the transportation perils of: (1) collision (but not with the transporting vehicle unless the vehicle itself is involved in an accident); (2) upset; and (3) stranding or sinking of the mobile home (while being transported on a licensed ferry). Coverage applies for 30 days anywhere in the continental United States or Canada. 3. Watercraft Eligibility - Though criteria depends upon the insurance carrier offering the coverage, property acceptable under the ISO Watercraft program includes craft designed for use on bodies of water which are owned or operated on a long term (minimally six continuous months) lease. Besides craft, coverage extends to outboard motors (including starters and related equipment attached to outboards), trailers and accessories (that are related to the use of the covered craft). The policy specifies that the watercraft is to be used on inland waters or coastal waters within 12 miles of the shore or, in the Great Lakes BUT ONLY when within the U.S., its territories or possessions, Puerto Rico or Canada. The policy includes watercraft liability and medical payments coverage applicable to all occupants of the craft. Uninsured boater s coverage can be provided. Part D provides Coverage for damage to the watercraft including any boat, motor, trailer, and accessories described in the Declarations. Coverage is usually on an open peril basis with a deductible. This is often referred to as hull coverage. approximately 25 practice questions dealing with Watercraft Coverage. This is out of nearly 2,500 total questions. 4. Farm Owners Farmers' businesses and homes are often at the same location, so they must have insurance that will cover both their personal and business exposures to loss. The farm coverage part, which can be written as a mono-line policy or included in the CPP (commercial package policy), includes several farm property coverage forms that cover both the personal and business property of the farmer and a farm liability coverage form for the personal and business liability exposures of the farmer. Farm Property Coverage Forms - The Farm Property coverage forms cover direct physical loss to a variety of properties. The insured can select any combination of three separate sets of perils that are contained in the same form. These sets of perils consist of the basic perils, broad perils and special perils. The insured chooses which perils apply to the policy coverage. This selection is indicated on the declarations page of the policy. The Farm Dwellings, Appurtenant Structures and Household Personal Property coverage form is similar to Section I of the Homeowners policy. It contains the following coverages: QUICK NOTES - 30

31 Coverage A Dwellings Coverage B - Other Private Structures Appurtenant and pertaining to the residence premises and separated from the dwelling by a clear space. (10% of Coverage A limit) Coverage C - Household Personal Property Coverage D - Loss Of Use (i.e., additional living expense and fair rental value) Grave markers - Pays up to $5,000 for grave markers including mausoleums on or away from the residence premises by a peril insured against Refrigerated Products Coverage extends up to $500 for loss or damage to contents of a freezer or refrigerated unit due to an interruption of electrical services. A special limit of $1,000 per occurrence applies to loss or damage to outdoor radio and TV antennas and satellite dishes. In general, growing crops, trees, plants, shrubs, and lawns are excluded. However, a coverage extension for Coverages A and C allows limited coverage for trees, plants, shrubs, or lawns within 250 feet of the covered residence, but only against loss by specified perils. Special Limits - For certain types of personal property such as money, boats, jewelry, furs, and guns are basically the same as in the homeowner forms. The limit for the theft of guns is $3,000. Coverage E Scheduled Farm Personal Property covers property for the limit shown in the Declarations. Examples of property that can be covered under Coverage E include grain, farm products, poultry, livestock, computers and related software that are part of farming operations and used as part of farm management, machinery and vehicles and equipment incidental to farm use. Coverage F Unscheduled Farm Personal Property covers farm personal property on a blanket basis both on and off the insured premises. A blanket limit for livestock can be added, however the most that will be paid for a head of livestock (adult animal, one year of age or older) will be $2,000. $1,000 is payable for an animal under a year of age known as a half a head. Newly acquired livestock are automatically covered for 25% of the blanket limit for 30 days from the time of acquisition. Coverage G The Barns, Outbuildings and Other Farm Structures coverage form covers barns, silos, fences, radio equipment, and other farm buildings and structures that are not dwellings. Pasture and field fences are not covered. Causes of Loss and Other Provisions - The Farm Property-Causes of Loss form is a separate document that lists the perils the property is insured against. This form offers three separate levels of coverage within the same form: Basic, Broad or Special. These levels of coverage are very similar to those provided by the Commercial Property Causes of Loss forms except for some special clauses that pertain to farm operations. approximately 50 practice questions dealing with Farm and Crop / Hail Coverage. QUICK NOTES - 31

32 The Declarations indicate what level of coverage the insured has selected for each form. The insured may obtain coverage against earthquake by purchasing the separate Earthquake Causes of Loss form. Perils covered under the Covered Causes of Loss Basic section include: Fire Lightning Windstorm or hail Explosion Riot or civil commotion Aircraft Smoke Vandalism Theft Volcanic action Sinkhole collapse Earthquake or flood loss to livestock Property insured under the Farm Property and Farm Structures forms is also covered for collision that results in: Damage to covered farm machinery or other farm personal property; and Death of covered livestock The Covered Causes of Loss-Broad section adds additional perils. Some that are unique to the farm risk include: Electrocution of covered livestock Attacks on covered livestock by dogs or wild animals Drowning of covered livestock Accidents involving loading or unloading of livestock Accidental shooting of covered livestock The Covered Causes of Loss-Special section provides open peril coverage. Among the excluded losses are: Dishonest or criminal acts of the insured or employees Pollutants or contaminants Transfer of property due to unauthorized instructions Voluntary parting with property Failure to save and preserve property from loss Loss that can only be proven through an inventory shortage Mysterious disappearance unless there is some evidence of theft approximately 50 practice questions dealing with Farm and Crop / Hail Coverage. QUICK NOTES - 32

33 Farm Loss Settlement Provisions - If the limit of insurance on the damaged structure is insured for at 80% of its full replacement cost as of the time of loss, the insurer will settle the loss on the basis of repair or replacement cost that will equal the smallest of the following amounts: 1) The cost to replace the damaged part of the structure with equivalent construction for use on the same premises. 2) The amount actually and necessarily spent to repair or replace the structure 3) The applicable Limit of Insurance. If the limit of insurance on the damaged structure is less than 80% of its full replacement cost as of the time of loss, the company will settle on the basis of (1) or (2) below, whichever is larger. 1) The actual cash value, as of time of loss, of the damaged part of the structure. (no more than the applicable limit of insurance) 2) A proportion of the cost to repair or replace the damaged part of the structure, without deduction for depreciation. This proportion will equal the ratio of the applicable Limit of Insurance to 80% of the cost of repair or replacement. If the loss qualifies for payment on a replacement cost basis, but the cost of repair or replacement is more than either $2,500 or 5% of the applicable Limit of Insurance, the only basis on which the insurer will settle pending completion of repairs or replacement is actual cash value, as of time of loss, of the damaged part of the structure. In case of such a loss, the insured can make an initial claim for payment on the actual cash value basis, and later make a supplementary claim for replacement cost payment. If this option is elected, the insured must notify the insurer of the intention to do so within 180 days of the occurrence of the loss. Additional Farm Forms: Mobile Agricultural Machinery and Equipment Form - This form provides for the scheduling of mobile equipment separately from other farm property. Coverage may also be provided on a blanket basis for most items except cotton pickers and combines which must be specifically scheduled. Coverage is written on an open peril basis with few exclusions. There is an endorsement for this coverage as well. Livestock Floater - This form allows livestock to be covered on a scheduled or blanket basis. This is a named peril form and covers certain types of livestock including cattle, sheep, swine, goats, horses, mules and donkeys. The form requires that the stock be insured for 80% of its value. Note: Poultry cannot be covered under this form. approximately 50 practice questions dealing with Farm and Crop / Hail Coverage. QUICK NOTES - 33

34 Farm Liability Coverage Form - The Farm Liability coverage form provides these coverages for liability arising out of farming operations or personal activities: Coverage H-Bodily Injury and Property Damage Liability Coverage I-Personal and Advertising Injury Liability Coverage J-Medical Payments The exclusions are similar to those found in other Liability policies. There is no coverage for losses arising out of: Pollutants Injury to farm employees Motor vehicles, except as specifically described in the policy The insured's performance of, or failure to perform, custom farming operations for others Damage to the insured s own products Aircraft spraying Farm Liability Endorsements: Farm Employers Liability and Farm Employees Medical Payments Insurance This endorsement adds coverage for farm employee s medical coverage where workers compensation may not apply. Custom Farming Liability Coverage This form adds coverage for custom farming, which is generally excluded if receipts exceed $5,000 in the previous year. 5. Crop/hail Crop insurance is a specialized field that now includes a variety of coverages used to insure about two hundred different types of crops in the U.S. Crop insurance provides coverage against losses to growing crops. The coverage provided by crop insurance is usually written to protect a proportion of the reduced yield (the actual economic loss). There are various to insure crops and these may vary by state and by insurer, depending on the program selected to insure the crops. Crop hail coverage is written by private insurers and is not subsidized by the federal government. Multi peril coverage is subsidized by the federal government. Traditionally, crop hail insurance has been written on named peril forms covering some of the following perils: Fire and lightning Hail Wind Transportation coverage Crop hail coverage is written by the private insurance sector and is not reinsured by the federal government. Coverage perils, effective dates, rates and deductibles can vary by insurance carrier. approximately 50 practice questions dealing with Farm and Crop / Hail Coverage. QUICK NOTES - 34

35 Common exclusions for Crop Hail Insurance (may vary by company): Until normal visible stand (crop must be up) Before effective hour Failure to harvest a mature crop Any crop recoverable by harvest Non-owned property (share crop) Loss resulting from injury to buds, blossoms, blooms or stalks (unless crop is affected) Injury to leaves, vines, etc., unless crops are damaged or affected by injury. Injury to trees or bushes of fruit or nut crops. Crop insurance is rated on an acreage basis. The insured can choose a wide variety of coverage options. These include insuring the crops on a percentage such as 50% and higher (some crops can be insured up to 100) of the expected value of the yield. Some policies are written to provide a minimum loss percentage such as 5% before the policy will pay. A crop-hail policy is an example. This is not a deductible but merely a threshold before coverage applies. Multiple Peril Crop Insurance - (MPCI) provides comprehensive protection against weather-related causes of loss and certain other unavoidable perils. Coverage is available on over 76 crops in primary production areas throughout the U.S. at 50 to 75% of the actual production history (APH) for the farm. The yield guarantee is the historical actual production history (APH) yield times the level of coverage, times the insured acreage, times the insured's share. Multi-peril crop insurance usually covers losses by adverse weather such as: - Hail - Volcano - Wind - Drought - Hurricane - Excessive moisture - Tornado - Insect infestation - Lightning - Plant disease - Flood - Wildlife damage - Fire - Earthquake - Failure of an irrigation water supply after planting due to an unavoidable cause Small Grains Policy - Small grain consists of wheat, oats and barley. The small grains policy insures coverage for wheat, barley, and oats grown for harvest as grain on insurable acreage. Coarse Grains Policy - Coarse grain consists of corn, grain sorghum and soybeans. Coverage is provided more or less on the same basis as the small grains policy. Insuring Units - The insurable acreage is grouped into one or more units in order to establish the approved yield, calculate, and determine any indemnity. The price election is used to calculate the premium or indemnity. For example: Barley $2.20 per bushel, Oats $1.80 per bushel and wheat $3.90 per bushel. A unit is defined as that acreage of the insured crop in the county which is taken into consideration when determining the guarantee, premium, and the amount of any indemnity (loss payment) for that acreage. approximately 50 practice questions dealing with Farm and Crop / Hail Coverage. QUICK NOTES - 35

36 6. Windstorm A windstorm is considered an act of God and in some areas of Florida state programs are available to provide a market for coverage. II. Property Insurance Terms and Related Concepts (9% of State Exam) A. Insurance Insurance is a social device for spreading the chance of financial loss among a large number of people. 1. Law of Large Numbers - By combining a large number of homogeneous units, the insurer is able to make predictions of possible loss. Using the law of large numbers, insurers are able to calculate their probable losses and to establish the rates for premiums that will cover their losses and their operating expenses. B. Insurable Interest A person is deemed to have an insurable interest in property when he has a lawful, substantial, economic interest in the preservation of that property. The term person includes an individual, company, insurer, association, organization, reciprocal, partnership or any other legal entity. C. Risk Risk is the possibility (uncertainty) that a loss might occur and is the reason that people buy insurance. If a certain event happens, - accident, sickness, or death loss occurs. 1. Pure vs. Speculative Risk Pure Risk - A situation where there is only the possibility of loss. (Example: Catastrophic medical expenses, liability loss suit, damage by fire, lightning, etc.) This is an insurable risk. Speculative Risk - A situation where either profit or loss is possible. (Example: Betting on a horse race, investing in real estate) Usually not an insurable risk. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 36

37 D. Hazard 1. Moral - A condition of morals or habits that increases the probability of a loss from a peril. 2. Morale - Hazard arising out of an insured s indifference to loss because of the existence of insurance. 3. Physical - Any hazard arising from the material, structural, or operational features of the risk itself apart from the persons owning or managing it. E. Peril A peril is the actual cause of a loss (fire, windstorm, hail). F. Loss There are two principle types of losses. 1. Direct - Physical damage caused by an insured peril. 2. Indirect - A loss that is a result of a covered peril. Loss of an apartment building by fire is a direct loss. The loss of rental income as a result of the fire is an indirect loss. Indirect loss includes loss of use. G. Loss Valuation 1. Actual cash value - This is the cost new less depreciation value. 2. Replacement cost - This is the cost new value without the application of depreciation. 3. Market value - Some property claims, such as antiques, are adjusted on the basis of market value (the price that the market will support). 4. Stated Value - An agreed amount of insurance which is shown on a property policy and that will be paid in the event of a total loss regardless of the actual value of the property at the time of loss. If the value increases the limit stays the same. 5. Salvage Value - If the insurer pays a loss on behalf of the insured, the insurer is entitled to the salvage to reduce the claim. H. Proximate Cause An unbroken chain of events that causes a loss. This is an event that, in a natural and continuous sequence, produces a loss. If a fire should occur, followed by smoke and water damage, the entire loss is considered to have been caused by the peril of fire. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 37

38 I. Deductible This is the self-insured part of an insured loss. Usually applies to first party claims such as property claims or auto physical damage claims. The insured must bear this loss. J. Indemnity The principle of indemnity assumes that a claimant should only be restored to the approximate financial condition that existed prior to the loss, no better or no worse. K. Limits of liability The maximum amount of insurance the insurance company will pay for a particular loss or for a loss during a period of time. L. Coinsurance/Insurance to Value This is a very important clause to understand in property insurance. With commercial insurance the coinsurance clause is a method of requiring the insured to insure at least 80% of the value of the property in exchange for a premium discount. This clause is used whether the insured insures the property on an actual cash value basis or on a replacement cost basis. If the insured's policy contains this clause and the insured carries less that this amount, a penalty will occur in case of partial losses. The insured can always insure for more than 80% of the value of the property. As an example, if a person insures property with an actual cash value of $100,000 on a policy with an 80% coinsurance requirement, the insurance required is $80,000 (80 % of $100,000). If the insured elects to carry a limit of only $60,000 (60% of the actual cash value), then he or she becomes a partner with the insurance company on partial losses. With personal lines insurance (homeowners and dwelling policies), coinsurance is not mentioned. Instead, while dealing with loss adjustments the clause is referred to as the loss settlement clause. M. Occurrence In liability policies generally defined to be an accident, including continuous or repeated exposure to substantially the same general harmful conditions. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 38

39 N. Cancellation All property and casualty policies contain cancellation and nonrenewal provisions. A cancellation occurs before a policy has expired, in other words mid-term. If the insurer cancels a policy, the unearned policy premium will be returned to the insured on a pro-rata basis. If the insured cancels the policy, the premium is returned on a short-rate basis. There is a small penalty when the policy is cancelled by the insured. O. Nonrenewal A nonrenewal notice is sent prior to the expiration date of the policy advising the insured that the policy will not be renewed. States have insurance laws that govern the permissible reasons for both cancellation and nonrenewal and the time-frame in which notice must be given to the insured in advance of these actions. P. Vacancy and Unoccupancy Vacancy means the building is void of contents and people. The building is simply not being used. Perils such as freezing, vandalism and malicious mischief are limited when a building is vacant. In most cases the insurance can purchase Vacancy Permit coverage to have some of the coverage restored for an additional premium. Unoccupancy means the premises are void of people. In most cases this will not affect the coverage provided by the policy. Q. Liability 1. Absolute - Negligence has to be present to hold someone legally liable for an action. There are some exceptions, however. Absolute liability is imposed by law on those participating in certain activities that are considered especially hazardous. Individuals involved in such operations may be held liable for the damages of another, even though the individual was not negligent. Absolute liability is most frequently applied to activities involving: Dangerous materials Hazardous operations (blasting) Dangerous animals 2. Strict - Absolute liability is sometimes also known as strict liability. Strict liability is usually used in reference to products liability. 3. Vicarious - There are times when a person may be held responsible for the negligent acts of another person. This is known as vicarious liability, or imputed liability. A common form of vicarious liability involves the relationship between an employer and an employee. An employee could cause an accident and the employer is held legally liable. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 39

40 R. Negligence The failure to exercise that degree of care that the law requires to protect others from an unreasonable risk of harm. The failure to act as a prudent person would have acted under similar circumstances. S. Binder An oral or written statement providing immediate insurance protection, valid for a specified period. Designed to provide temporary coverage until a policy can be issued or denied. T. Endorsements A document which is attached to the policy and modifies or changes the original policy in some way. U. Medical Payments A coverage found in various casualty policies. It is designed to pay for the medical expenses on a no fault basis. V. Blanket vs. Specific The terms blanket and specific are used in both property insurance and crime insurance. In property insurance specific coverage on a building or building and contents can be written. Blanket property coverage is one limit that applies to all property to be insured. In crime insurance this concept deals with employee dishonesty coverage. A blanket crime policy covers all employees. Specific coverage deals with an individual by name or position. W. Burglary, Robbery, Theft, and Mysterious Disappearance Burglary-Must show signs of forcible entrance or exit for coverage to apply Robbery-The taking of property by force or the threat of force. Theft-Theft is changed from "any act of stealing" to the more specific "unlawful taking of money, securities or other property to the deprivation of the insured." Theft has the broadest definition of criminal activity. Mysterious Disappearance- It is unknown how the loss occurred but the property is missing. It can include the presumption of theft. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 40

41 III. Property Policy Provisions and Contract Law (7% of State Exam) A. Declarations The section of an insurance contract which show who is insured, what property or risk is covered, when and where coverage is effective and how much coverage applies. B. Insuring Agreement The section of an insurance policy which states which losses will be indemnified, what property is covered, and which perils are insured against. C. Conditions The part of an insurance contract which sets forth the rights and duties of the insured and the insurance company. D. Exclusions The section of the insurance policy which lists property, perils, persons, or situations which are not covered under the policy. E. Definition of the Insured The insured is the first party to an insurance contract. This can also include other members of a household in personal lines insurance and any individual or other business entity in commercial insurance. F. Duties of the Insured This includes payment of the premium, protection of the property before or after a loss and cooperation with the insurer in case of a claim including prompt reporting of the claim. G. Obligations of the Insurance Company The insurer is required to fulfill its obligations under an insurance contract in exchange for the premium paid by the insured. By state law they are to act promptly and fairly in the adjustment of claims. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 41

42 H. Mortgagee Rights Protects the interest of the financial institution against loss to real property caused by perils insured against. It also grants coverage even if the insured intentionally caused the loss. The institution can also provide a proof of loss or pay premiums in case the insured cannot or refuses to do so. They must also be advised if the contract has been cancelled or non-renewed by the insurer. I. Proof of Loss (1) The evidence offered by the insured to prove entitlement to collect the amount claimed from the insurer. (2) The statement, signed and sworn by the insured, setting forth the claim information required by the policy. J. Notice of Claim The insured is obligated to report all claims in a timely fashion and cooperate with the insurer. The insured is also required to separate the damaged from the undamaged property and protect the property from further damage. K. Appraisal This clause is found in property insurance contracts as well as the physical damage coverage in automobile policies. The purpose of the clause is to allow the insured and the insurer to arrive at an agreed amount of the value of the property damaged. The insured and the insurer each employ their own appraiser. They attempt to agree on the value of the damaged property. If they can't agree on the value of the loss, then an umpire is consulted. Each shares in the cost of the umpire. The amount agreed to by any of the two of the three parties is the amount paid on the loss. L. Other Insurance Provision When two or more policies cover the same interests for the same exposures, each policy is said to represent other insurance to the other. Most insurance policies contain clauses that specify how or if claims will be paid if other insurance exists for the same exposures. M. Assignment The transfer by a policyholder of the legal right or interest in a policy contract to a third party. Not permitted unless in writing with the insurer s consent. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 42

43 N. Subrogation The right of one party who has paid for the loss of a second party to obtain recompense from the third party who is responsible for the loss. For example, an insurance company becomes subrogated to the rights of its insured to the extent of the insurer's payment for collision damage caused by the negligence of the other driver. O. Elements of a Contract Capacity to Contract: In order for the contract to be binding, all parties must have the necessary capacity to enter into the contract. Cases where capacity has been deemed insufficient include: minors, mental incompetents and those who sign a contract while under the influence of drugs or alcohol. Legal Purposes / Object: An insurance contract must not be written to cover an illegal activity or immoral purposes. Offer and Acceptance - An applicant completes an application for coverage and the insurance company accepts it and returns a policy or a binder. If the insurance company issues an altered policy, the altered policy becomes a counter-offer. Consideration Something that has value in the eyes of the law in which a promisee receives something in return for a promise. The insured (the promisee) gives the application and premium to the agent and/or company in return for their promise to pay in the future. P. Warranties, Representations, and Concealment Warranty Something that becomes part of the contract and is a statement that is considered to be a guarantee. Representations The acceptance or rejection of an insurance risk and the amount of premium that would be required is determined by information submitted by the person applying for such insurance. Concealment Concealment is the failure of the insured to reveal relevant facts known to the insured when applying for insurance. Perhaps the insured is concealing a criminal record of arson and if this information was known by the insurer the coverage would be denied. Q. Sources of Underwriting Information Physical inspections, credit reports and information contained in the application for coverage are the prime source of underwriting data. Also many companies require loss data from the previous carrier. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 43

44 R. Fair Credit Reporting Act Under the federal Fair Credit Reporting Act, a consumer report is any written, oral or other communication by a consumer reporting agency that: Bears on a consumer s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living, and Is used as a factor in establishing the consumer s eligibility for credit or insurance to be used primarily for personal, family, household purposes, or is used for employment purposes. The circumstances in which a consumer reporting agency may furnish a consumer report are limited, but a consumer reporting agency may furnish a consumer report to a person it has reason to believe intends to use the information: In connection with a credit transaction involving the consumer about whom the information is to be furnished; For employment purposes; or In connection with underwriting insurance involving the consumer. A consumer reporting agency may not furnish a consumer report that contains medical information about a consumer unless the consumer consents to the furnishing of the report. S. Privacy Protection (Gramm Leach Bliley) The Gramm-Leach-Bliley Act (GLB Act), also known as the Financial Modernization Act of 1999, is a federal law enacted in the United States to control the ways that financial institutions (companies that offer consumers financial products or services such as loans, financial or investment advice, or insurance) deal with the private information of individuals. The GLB Act requires such companies to give customers written privacy notices that explain their information-sharing practices and to safeguard sensitive data. The Act consists of three sections: 1. The Financial Privacy Rule, which regulates the collection and disclosure of private financial information; 2. The Safeguards Rule, which stipulates that financial institutions must implement security programs to protect such information; and 3. The pretexting provisions, which prohibit the practice of pretexting (accessing private information using false pretenses). approximately 250 practice questions dealing with General Insurance Laws & Regulations. This is out of nearly total questions. QUICK NOTES - 44

45 T. Policy Application A formal form for specific insurance coverage completed by the insured or with the agent and signed by the insured. It is then submitted to the insurer for acceptance or rejection. U. Terrorism Risk Insurance Act (TRIA) This Act (known as TRIA) is an agreement between the government and insurance companies to provide catastrophe damage cause by terrorism. This act must be certified by the Secretary of State. It is not a state of war. Losses must exceed $5,000,000 to be an act. Damage applies to commercial risks, commercial casualty, workers compensation and surety. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 45

46 IV. Types of Casualty Policies, Bonds, and Related Terms (15% of State Exam) A. Commercial General Liability A policy to cover the operations of basically any type of business including contracting and manufacturing risks. 1. Exposures This pertains to the types of risks created by the kind of operations being conducted by the insured. These exposures create a liability risk creating the need for this coverage. a. Premises and Operations Premises liability deals with claims that occur on the premises. A person falls on the wet floor in a store as an example. Operations liability deal with contacting types of risks where the bodily injury or property damage occurs while work is being performed. A brick layer drops a brick on a pedestrian s head. b. Products and Completed Operations - Products liability occurs once the product has been relinquished to others and the bodily injury or property damage occurs away from the premises. Mary buys a microwave and it catches the house on fire and she is injured. 2. Coverage a. Coverage A: Bodily Injury and Property Damage Liability (1) Occurrence- The majority of general liability policies are written on an occurrence basis. The injury/damage must occur during the policy period. (2) Claims made - Occurrence versus Claims-Made - The basic difference is that the Occurrence form pays for claims that occur during the policy period. The Claims Made form pays for claims presented or made during the policy period. approximately 250 practice questions dealing with Commercial General Liability (CGL). QUICK NOTES - 46

47 (a) Extended Reporting Periods: Basic and Supplemental Basic Form: This tail is automatically provided without additional charge, and covers occurrences reported by the insured to the insurer within 60 days after the policy expires as long as a claim is made by a third party against the insured within 5 years. Extended: Additional premium charged and provides unlimited duration to report claims. (b) Retroactive Date - This is a very important date. This is when the claims made insurance begins. Claims cannot be covered that occurred before the retroactive date. (Trigger - When the coverage is activated by a claim covered under a claims made form.) b. Coverage B: Personal Injury and Advertising Injury - Personal and Advertising Injury Liability - This is basically non-bodily injury. It includes libel, slander, wrongful eviction, wrongful prosecution, etc. Advertising injury also includes oral or written publication that violates a person s right of privacy, infringement of advertising ideas or style of doing business. c. Coverage C: Medical Payments Covers injuries without regard to negligence for invitees of a business or operation. It pays medical payments for up to one year from the date of an occurrence. d. Supplemental Payments These pay in addition to the limits of liability coverage. Defense costs and cost of investigations $250 for the cost of bails bonds required The cost of bonds to release attachments Reasonable expenses of insured and up to $250 per day for loss of wages All costs taxed against insured; prejudgment interest and interest that accrues after suit on the unpaid judgment. e. Who is an insured - Basically any type of business entity can be an insured. Insured also includes employees acting within the scope of their duties. Volunteer employees are also covered as insured s acting within their scope of duties. Appointed legal representations like a real estate broker, are also included. approximately 250 practice questions dealing with Commercial General Liability (CGL). QUICK NOTES - 47

48 f. Limits These are broken down as follows: Per occurrence - This is the most that can be paid on any one claim. Annual Aggregate - This limit is the most that can be paid for all claims during the policy period. (Note: Premises/operations coverage has a separate per-occurrence limit and aggregate limit. The same is true of products/operations coverage.) g. Damage to Property of Others - This coverage provides coverage for damage to a building caused by the negligence of the insured causing a fire. It has a separate limit of $50,000 which can be increased. B. Automobile: Personal Auto and Business Auto The Personal Automobile Policy 1. Liability a. Bodily Injury - "Bodily injury" means bodily harm, sickness or disease, including resulting death to others. This is third party liability. b. Property Damage - Property damage" means physical injury to, destruction of or loss of use of tangible property of others. c. Split Limits - Split limits are expressed by three figures. There is a limit representing the maximum payable for each person injured per occurrence for bodily injury and another limit applicable to the claims of all persons injured in the accident or occurrence. Lastly there is a property damage to others limit. d. Combined Single Limit - The single limit pays a single amount as the maximum liability of the insurer with respect to any one accident/occurrence involving either or both bodily injury and property damage. Note: Out of State Coverage - If the insured is out of state and involved in an accident and their liability coverage limit meets the financial responsibility requirements of their home state, the policy will automatically provide whatever liability limits are required by that state. approximately 300 practice questions dealing with Personal & Commercial Auto. QUICK NOTES - 48

49 2. Medical Payments This coverage applies to all occupants in the vehicle who may be injured in an automobile accident. Negligence is not a factor. It also covers the named insured and family members while in another vehicle or injured as pedestrians. Medical payments under the PAP are provided for up to three years from the accident. Coverage applies while in, on, entering or exiting but not while under the vehicle. 3. Physical Damage (Collision; Other than Collision; Specified Perils) Collision Covers with another vehicle or object (including a pot hole), includes upset and rollover Other than Collision - This optional coverage pays for losses caused by other than a collision. Includes theft or larceny, windstorm, hail, water or flood, breakage of glass, malicious mischief or vandalism, contact with bird or animal, explosion or earthquake, missiles or falling objects, fire, riot or civil commotion. Transportation Expenses - Provides up to $20 per day, maximum of $600 for transportation expenses incurred by the insured because of physical damage losses to the insured s covered auto. If stolen there is a 48 hr. waiting period. For other types of losses there is a 24 hour waiting period. Property NOT Covered for Physical Damage: No coverage for electronic equipment designed for the reproduction of sound, including, but not limited to: Radios and stereos; Tape decks; Compact disc players; Navigation systems; Personal computers; Video entertainment systems; Telephones; Televisions; Two-way mobile radios; Scanners; or Citizens band radios. Note: This exclusion does not apply to electronic equipment that is permanently installed in your covered auto or any non-owned auto. approximately 300 practice questions dealing with Personal & Commercial Auto. QUICK NOTES - 49

50 4. Uninsured Motorists Pays the insured and occupants of the insured vehicle against bodily injury claims which they are legally entitled to recover resulting from an auto accident with: Other drivers who have no auto liability insurance; Insured s carrying less than the financial responsibility amount of their home state; Hit and run drivers (Some states have adopted the phantom driver law which does not require physical contact to be considered hit and run); Another driver whose insurer denies coverage or becomes insolvent. 5. Underinsured Motorists This coverage is available by endorsement. Provides coverage for the insured when involved in an accident with a driver who has legal limits of auto liability insurance, but the limit is not sufficient to pay the claim for which they are responsible. This coverage allows the insured to go back against his own policy to collect sums the other driver is legally liable to pay for bodily injury or (in some states) property damage. 6. Who is an insured? An insured under the personal auto policy is defined as follows: The named insured includes all family members living in the same household. An insured also includes someone given permission to drive a covered auto. A private passenger type auto, pickup or van is deemed to be owned by a person if leased, under a written agreement for a continuous period of at least six months. Your covered auto" means: 1. Any vehicle shown in the declarations. 2. A "newly acquired auto" subject to restrictions as to time limits; 3. Any "trailer" you own 4. Any auto or trailer you do not own while used as a temporary substitute for a covered vehicle or trailer which is out of normal use because of breakdown, repair, servicing, loss or destruction 7. Types of Autos Covered under the PAP The PAP is designed to cover 4-wheeled vehicles, less than 10,000 GVW and not used for business except for farming and ranching. Some exceptions exist for business use such as salesmen, a contractor delivering bids etc. A vehicle with fewer than 4 wheels would be covered in case of a medical emergency. approximately 300 practice questions dealing with Personal & Commercial Auto. QUICK NOTES - 50

51 a. Owned If owned and subject to one of the symbols mentioned above then coverage applies. b. Non-owned This is coverage for the insured when liability is incurred when an accident occurs and the insured is brought into the claim. Perhaps an employee uses their owned vehicle on company business and is involved in an accident. Coverage protects the insured and not the employee. c. Hired If the insured hires a vehicle for company related activities and an accident occurs then the insured is protected. d. Temporary Substitute See above. e. Newly Acquired Autos See above. f. Transportation Expense and Rental Reimbursement Expense In commercial auto coverage only applies the theft of a private passenger auto. The coverage under the PAP is broader (see above). 8. Garage Coverage Form including Garagekeepers Insurance Garagekeepers insurance covers damage to a customer s vehicle while in the care and custody of a garage or repair shop. Fire, theft, V&MM, collision is some loss examples. There are two forms; one is legal liability only and the other pays regardless of legal liability. Garage liability is a separate coverage and should not be confused with garagekeepers coverage. 9. Exclusions These include intentional acts, war, nuclear hazards, while being used in professional racing or stunting activity, wear and tear, freezing, electrical breakdown and blow outs and tire punctures except in a collision loss or another comprehensive loss claim like V&MM. Radar detection, sound or other electrical equipment not installed permanently is not covered. approximately 300 practice questions dealing with Personal & Commercial Auto. QUICK NOTES - 51

52 10. Individual Insured and Drive Other Car (DOC) Individual Named Insured - An Individual Named Insured endorsement may be used to add an individual and their family members to business auto insurance. Used primarily when the insured business wants to include that individual s owned auto to the business auto policy. Drive Other Car Coverage - This endorsement extends the commercial auto coverage to insure the non-business exposures of named individuals who may not own an automobile and may not carry personal auto insurance. As an example assume a car dealer does not own a personal auto. He decides to go on vacation and rent a vehicle. He would need personal auto coverage. The Commercial Automobile Policy There are three forms of coverage. Business Auto - This is the most popular form. It is used to cover practically all types and sizes of vehicles. Garage - This form is used to cover parking garages, repair garages, auto dealers, mobile home dealers and those other risks that service or repair autos. The policy provides premises, products, completed operations, and the operation of vehicles for liability exposures only and not physical damage to owned or non-owned (customers vehicles) unless endorsed. Motor Carrier - A motor carrier is anyone who transports property by auto in a commercial enterprise, regardless of whether he or she was hired for that purpose. a motor carrier may be engaged in transporting property or passengers. This would include vehicles such as trucks, taxis, buses, limos etc. Coverage Form Sections: Covered Autos - A covered auto for each coverage in the policy is designated by a symbol, depending on the extent of coverage the insured purchases. A series of symbols are defined in Section I of the policy, as follows: 1. Symbol 1 Any auto; (this is the broadest coverage symbol) 2. Symbol 2 Owned autos only; Any type of owned vehicle 3. Symbol 3 Owned private passenger autos only; approximately 300 practice questions dealing with Personal & Commercial Auto. QUICK NOTES - 52

53 4. Symbol 4 Owned autos other than private passenger autos; 5. Symbol 5 Owned autos subject to no-fault benefits; 6. Symbol 6 Owned autos subject to compulsory uninsured motorists law; 7. Symbol 7 Specifically described autos only; 8. Symbol 8 Hired autos only (autos leased, hired, rented or borrowed. It does not include those from employees or members of their households.) 9. Symbol 9 Non-owned autos only; can provide the insured coverage as a result of an employee using their personal vehicle on company business 10. Symbol 19 Mobile Equipment subject to Compulsory Auto Financial Responsibility requirements. Liability Coverage - Section II of the Business Auto policy covers legal liability of the insured up to the liability limit, plus unlimited defense costs and supplementary payments for auto accidents which occur during the policy period. Pollution damage will be covered if pollution is caused by an accident, and involved a substance that was necessary for normal functioning of the auto. For example fluids from the gas tank, crank case etc. Commercial Auto Physical Damage Coverage - The Physical Damage coverage of the policy covers accidental direct damage to covered autos and their equipment, as follows: 1. Collision Overturn of the covered vehicle or collision with another object. 2. Comprehensive Any loss, other than collision or overturn that is not otherwise excluded. This would include glass breakage or hitting an animal. 3. Specified Causes of Loss Is similar to Comprehensive but is more limited in coverage. Specified perils are named peril coverages which include the following: fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief or vandalism, and the sinking, burning, collision or derailment of a conveyance transporting the covered auto (such as in a ship). approximately 300 practice questions dealing with Personal & Commercial Auto. QUICK NOTES - 53

54 C. Workers Compensation Insurance, Employers Liability Insurance and Related Issues (This section does not deal with specifics of state law, which are addressed elsewhere in this outline.) 1. Standard Policy Concepts Workers Compensation laws are in effect in all 50 states, including the District of Columbia and U.S. territories. Nearly every state requires that employers (with very few exceptions) provide certain benefits to employees whose injuries or diseases arising from and during the course of employment without regard to fault. In a few states, however, employers can elect to provide these benefits, and if they do not, then injured workers retain the right to sue their employer for negligence and the employer will give up the defenses normally available to avoid paying damages. a. Who is an employee/employer The employee works for a wage and the employer, unless there are state exceptions, is required to provide workers compensation coverage. It is the employer that pays all of the premiums. b. Compensation: (1) Loss of Wages - When an employee s injury is severe enough that he or she is unable to return to work at the same job quickly, then the employee will likely become eligible for disability benefits, including income (also known as indemnity ) benefits and rehabilitation benefits. (2) Medical - There is no dollar limit or time limit on covered expenses. The employer is responsible for all medical costs until maximum medical recovery is reached, or some similar measure, depending on the state law. (3) Disability - There are four classifications of disability: 1. Permanent Total - the employee can no longer work at all; 2. Permanent Partial - the employee has suffered a permanent impairment, such as the loss or a limb, making the employee unable to continue in the same line of work 3. Temporary Total - the employee for a time can do no work at all, but is expected to recover; 4. Temporary Partial - the employee cannot immediately return to the same work, but can perform some other, light-duty work until he or she recovers. approximately 200 practice questions dealing with Workers Compensation coverage. QUICK NOTES - 54

55 (4) Vocational Rehabilitation - In the case of disability, each state provides some type of rehabilitation benefit. Necessary physical, mental, and vocational rehabilitation, including institutional care, maintenance costs, travel and incidental expenses are commonly provided. (5) Death/Survivor - Pays benefits including a burial allowance to the survivors of the deceased employee as a result of a work related injury or illness. 2. Work-Related vs. Non-Work-Related For benefits to apply the injury, sickness disease or death must result from a work related event. 3. Other States Insurance If the insured s Information Page indicates a state or states in the Other States Insurance field, and the insured does not already have insurance in that state or is self-insured, then the policy will automatically cover workers compensation claims for exposure that develops during the policy period in those states. (There is usually a question on this topic.) The insured is required to tell the insurer at once if they begin work in any of the states indicated in the Other States Insurance field. Note that the insurer cannot cover workers compensation claims in any monopolistic state, and it can only provide coverage in states in which it is properly licensed. 4. Employers Liability Covers an employer s legal liability for bodily injury (or disease) to employees which (1) occurs (or the last day of disease exposure occurs) during the policy period, (2) is outside the scope of state and federal workers compensation laws, (3) was not caused intentionally by the employer, and (4) is otherwise not excluded. 5. Exclusive Remedy As mentioned previously, most employers and employees, and thus most work-related claims, fall within the scope of workers compensation laws. Thus, workers compensation benefits are the exclusive remedy for the employee. However, these laws to not extend to all employments and all claims stemming from an employee s injury. Furthermore, these laws do not necessarily prevent lawsuits from being brought even though they might be dismissed soon afterwards. approximately 200 practice questions dealing with Workers Compensation coverage. QUICK NOTES - 55

56 6. Premium Determination The premium which appears on the insured s Information Page is an estimated premium. It is based on underwriting information provided by the insured (and possibly the insurance agent) regarding types of work performed and estimated annual payrolls for each type of work. The insurer will audit the insured s actual work classifications and payroll within three years of the policy s expiration, and will compute a final premium accordingly. Work Classifications NCCI, a rating organization, separates all work performed into more than five hundred different classifications and assigns a four-digit code to each classification. NCCI publishes information describing each of these classifications in detail. It also keeps vast quantities of historical premium and loss information for each classification, separated by state. Using this data, NCCI develops different rates for each classification, for each state. Some employers will have only one classification in the policy; other employers will have many classes, since they have employees doing many kinds of work. Rates are expressed in dollar terms. Rates are multiplied by the estimated annual payroll for the classification. Actually, the rate is applied per $100 of payroll. D. Crime 1. Employee Dishonesty Pays for loss of or damage to money, securities and other property resulting directly from theft by employees whether acting alone or in collusion with others. There are two forms as follows: Commercial Crime Coverage Forms - The Commercial Crime form limits applies on a per loss basis no matter how many employees were involved in the same loss. Government Crime Coverage Forms The coverage limit applies on a per loss and per employee basis. Coverage Trigger - Discovery and Loss Sustained - This determines when a loss caused by an employee might be covered. The loss must occur during the policy period and discovered within time limits after the coverage terminates. One year for the loss sustained form and 60 days for the discovery form. 2. Theft The "unlawful taking of money, securities or other property to the deprivation of the insured." Theft has the broadest definition of criminal activity. 3. Robbery Stealing by threat of force. approximately 130 practice questions dealing with Crime and Bonding. This is out of nearly 2,500 total questions. QUICK NOTES - 56

57 4. Burglary Must show physical signs of forcible entry or exit for coverage to apply. 5. Forgery and Alteration Covers loss resulting directly from forgery or alteration of outgoing checks, drafts, made or drawn by the insured. E. Bonds 1. Surety A three-party agreement guaranteeing that a principal will carry out the contractual obligations the principal has agreed to perform or, alternatively, to compensate the other parties to the contract for losses resulting from the principal's failure to perform. Under many surety bonds, the principal is a contractor. 2. Fidelity Insurance protecting employers from loss due to theft by their employees. Coverage can be provided to cover employees on a named schedule or position basis or all employees on a blanket basis. approximately 130 practice questions dealing with Crime and Bonding. This is out of nearly 2,500 total questions. QUICK NOTES - 57

58 F. Professional Liability 1. Errors and Omissions This is a non-bodily injury coverage that covers the alleged errors and omissions while the insured is performing within their profession. It is used to cover agents, attorneys, and other professions. These forms do not cover dishonest acts. Professional liability insurance is also available for errors and omissions of architects, engineers and surveyors which would include coverage for bodily injury since an error or omission on their part could cause financial harm to the owners of property and potential bodily injury to people injured if a building or part of a structure were to collapse due to an error in its design and/or construction. 2. Medical Malpractice 1. Hospitals - covers insured hospital for all sums it may become legally liable including medical, surgical, dental or nursing treatment to patients. 2. Physicians, Surgeons, and Dentists - covers claims alleging malpractice arising out of professional acts or omissions and acts of persons for which the insured is responsible like a nurse. 3. Nurses including practitioners, anesthetists, and midwives 4. Opticians 5. Optometrists 6. Chiropractors 7. Veterinarians 8. Pharmacists and assistants 9. Home health care providers 10. Physical Therapists and Trainers (Some medical malpractice policies contain the consent to settle clause meaning the insurer cannot settle a claim without the written consent of the insured.) approximately 100 practice questions dealing with Professional Liability and Umbrella coverages. QUICK NOTES - 58

59 3. Directors and Officers (D&O) Coverage is for individual directors and officers of a corporation for wrongful acts while acting in official capacity such as any breach of duty, neglect, error, misstatement, misleading statement and omissions. Also covers the corporation for amounts that its by-laws require it to reimburse directors and officers for defense and damages lost as a result of legal proceedings. 4. Employment Practices Liability (EPLI) Employment practices liability provides coverage for losses arising out of wrongful termination, discrimination in hiring, wages and firing, sexual harassment, and other employment-related practices. G. Umbrella/Excess Liability The testing outlines include the term excess coverage. Excess coverage should not be confused with umbrella coverage. They are somewhat different in their scope of coverage. Excess merely follows the form to provide higher limits. It does not broaden the coverage. The umbrella policy can be provided individuals for their personal activities as well as business risks. It provides both excess and broader coverage over their required underlying coverage. Insurers will require minimum limits of underlying coverage such as auto, HO liability, boat or yacht liability etc. The same is true for commercial risks. They usually provide world wide liability coverage with a deductible (referred to as self insured retention. A claim not covered by the underlying policy but is covered by the umbrella is subject to this deductible. For claims covered by either policy the deductible does not apply. approximately 100 practice questions dealing with Professional Liability and Umbrella coverages. QUICK NOTES - 59

60 V. Casualty Insurance Terms and Related Concepts (10% of State Exam) A. Risk - The uncertainty of loss that creates the need for insurance. B. Hazards - Increase the likelihood that a loss will occur. 1. Moral - A condition of morals or habits that increases the probability of a loss. 2. Morale - Hazard arising out of an insured s indifference to loss because of the existence of insurance. 3. Physical - Any hazard arising from the material, structural, or operational features of the risk itself apart from the persons owning or managing it. C. Indemnity - A fundamental concept governing insurance: compensation for loss or injury sustained. It is an attempt to restore the injured party to their condition prior to the loss. D. Insurable Interest In property and casualty this must exist at the time of loss. The potential for financial loss associated with damage or destruction of property. E. Actual Cash Value Cost new less depreciation F. Negligence - Action or failure to act that is outside the realm of what would be considered appropriate by ordinary, reasonably prudent persons. G. Liability - Liability imposed by law, including liability based on negligence, strict liability, or contractual liability. H. Occurrence - In Liability policies generally defined to be an accident, including continuous or repeated exposure to substantially the same general harmful conditions. I. Binders A temporary evidence of insurance coverage. It lapses once the policy for the coverage has been issued or the binder is terminated. J. Warranties - Something that becomes part of the contract and is a statement that is considered to be a guarantee. In ocean marine there are implied warranties. K. Representations The acceptance or rejection of an insurance risk and the amount of premium that would be required is determined by information submitted by the person applying for such insurance. L. Concealment - Concealment is the failure of the insured to reveal relevant facts known to the insured when applying for insurance. Perhaps the insured is concealing a criminal record of arson and if this information was known by the insurer the coverage would be denied. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 60

61 M. Deposit Premium/Audit - Also called advance premium which is a down payment on what will be the final premium, in policies where the final premium is subject to audit. Commercial auto, general liability and workers compensation polices are subject to an audit by the insurer to verify the number and type of vehicles or determine the payroll and classifications for general liability and workers compensation policies. N. Certificate of Insurance A document showing the details of an insured s policy or policies. It is not a policy but merely evidence of coverage. O. Law of Large Numbers Statistics used by insurers to determine rates and marketability of insurance products. P. Pure vs. Speculative Risk: Pure Risk - A situation where there is only the possibility of loss. (Example: Catastrophic medical expenses, liability loss suit, damage by fire, lightning, etc.) This is an insurable risk. Speculative Risk - A situation where either profit or loss is possible. (Example: Betting on a horse race, investing in real estate) Usually not an insurable risk. Q. Endorsements A document used to modify, clarify or change coverage. R. Damages: Compensatory Damages a. General - Type of compensatory damages that reimburse the injured party for such things as pain and suffering and disfigurement, and life-altering issues such as loss of mobility and loss of consortium not readily defined by actual incurred expenses. These damages pay for so-called non-economic losses. b. Special - Special damages: Type of compensatory damages the injured party for direct and specific expenses involved in the loss, such as medical expenses and loss of wages. These damages pay for so-called economic losses. Punitive - Casualty policies cover bodily injury and property damage caused by the insured as a result of his/her negligence. Punitive damages (sometimes referred to as exemplary damages ) are often awarded by the court and intended to punish the defendant. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 61

62 S. Compliance with provisions of Fair Credit Reporting Act - Under the Federal Fair Credit Reporting Act, a consumer report is any written, oral or other communication that involves a consumer s credit, creditworthiness and serves to provide information for eligibility for loans and insurance. It may include moral habits. A consumer reporting agency may not furnish a consumer report that contains medical information about a consumer unless the consumer consents to the furnishing of the report. Generally, a consumer report may list adverse information about the consumer, such as lawsuits, judgments, arrests, and convictions, only if those items occurred within seven years before the report. However, bankruptcies may be included if they predate the report by ten years or less. The consumer may request a copy of the report. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 62

63 VI. Casualty Policy Provisions (8% of State Exam) A. Declarations - The section of an insurance contract which show who is insured, their address, when coverage is effective and terminates and the coverage limits that applies. B. Insuring Agreement These are the obligations of the insurance company based on the types of risks assumed by the insurer. C. Conditions - The part of an insurance contract which sets forth the rights and duties of the insured and the insurance company. D. Exclusions and Limitations Certain types of claims will be denied or coverage is limited. War, nuclear hazards, certain types of pollution, intentional acts will normally be excluded. Some coverage like medical payments or damage to property of others will have limited limits. E. Definition of the Insured Basically any legal business entity can be listed as an insured. Insured also includes volunteer employees and other employees while acting within the scope of their duties for liability coverage. F. Duties of the Insured after a Loss The insured must report all claims in a timely fashion and cooperate fully with the insurer. G. Cancellation and Nonrenewal Provisions - Cancellation is when the policy is cancelled midterm. The insured can cancel anytime by notification or surrendering the policy. The insurer can only cancel for state approved reasons. Nonrenewal occurs at the end of the policy term and is not going to be renewed by the insurer. An advance notice to the insured must be sent. H. Additional (Supplementary) Payments These are additions of coverage that are in addition to the limits of liability. Defense and investigation costs; Up to $250 for bail bonds required because of an accident; Premiums on appeal bonds and bonds to release attachments in any suit the company defends; Interest accruing after a judgment is entered; Up to specified amount per day for loss of earnings because of attendance at trials or hearings; Other reasonable expenses incurred at the company's request. I. Proof of Loss In casualty insurance this could be suit papers, an oral report or a written report of an occurrence. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 63

64 J. Notice of Claim - A notice of a claim should be made promptly to either the agent or the insurer. K. Arbitration This usually occurs when two insurance companies are involved in the same claim and want an arbitration board to determine the liability of each insurer. L. Other Insurance This is when more than one insurer is covering the same risk for the same coverage. M. Subrogation After the insurer pays a claim on behalf of the insured they are entitled to the legal rights of the insured to pursue reimbursement for the amount of the claim paid caused by another party. N. Loss Settlement Provisions including Consent to Settle a Loss - Under most liability policies the insurer has full authority to settle a claim with or without the insured s permission. One exception to this rule is contained in some loss settlement provisions of a medical malpractice policy where the insured must give their consent to settle a claim. O. Terrorism Risk Insurance Act (TRIA) - This Act (known as TRIA) is an agreement between the government and insurance companies to provide catastrophe damage cause by terrorism. This act must be certified by the Secretary of State. It is not a state of war. Losses must exceed $5,000,000 to be an act. Damage applies to commercial risks, commercial casualty, workers compensation and surety. approximately 100 practice questions dealing with Casualty Insurance Provisions and TRIA. QUICK NOTES - 64

65 FLORIDA STATUTES, RULES, AND REGULATIONS I. Florida Statutes, Rules, and Regulations Common to All-Lines (17% of State Exam) A. Financial Services Regulation 1. Chief Financial Officer - The Chief Financial Officer of the state of Florida is one of three state-wide elected officials comprising the Florida Cabinet. Together with the Governor, the Cabinet acts as the "Board of Directors" of certain functions of Florida state government. Florida's CFO serves as one of three elected state executives of the Florida Cabinet, which consists of the Chief Financial Officer, the Attorney General, and the Commissioner of Agriculture and Consumer Services. The Governor and Cabinet serve as a board of directors, or agency heads, governing such matters as the purchase of state lands; clemency matters; state bond, trust and fund management; veterans' affairs; state law enforcement administration; tax collection; and financial and insurance regulation for the state of Florida. Florida's CFO oversees the state's accounting and auditing functions and unclaimed property, monitors the investment of state funds and manages the deferred compensation program and risk management program for the state. Insurance consumer service is handled by the CFO, and the office is responsible for the licensing and oversight of insurance agents and agencies, as well as funeral homes and cemeteries. Insurance fraud investigation also is overseen by the CFO, as well as ensuring businesses have workers' compensation coverage in place for employees and helping injured workers with benefit payments and re-employment. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 65

66 2. Financial Services Commission: a. Office of Financial Regulation (OFR) - The Florida Office of Financial Regulation (OFR) provides regulatory oversight for Florida s financial services providers. The mission of the OFR is to protect the citizens of Florida, promote a safe and sound financial marketplace, and contribute to the growth of Florida s economy with smart, efficient and effective regulation of the financial services industry. The OFR was created in 2003 by the Florida Legislature as a result of cabinet reorganization. The OFR reports to the Financial Services Commission, which is comprised of Florida s cabinet. The office is headed by a commissioner appointed by the Commission. The Commission has final rule approval, but all regulatory decisions are vested with OFR. The OFR has three Divisions and one Bureau. The programs oversee and regulate a wide range of financial enterprises and individuals, such as state-chartered banks, credit unions, mortgage loan originators, securities industry participants, consumer finance companies, money transmitters, foreign currency exchangers and payday lenders. b. Office of Insurance Regulation (OIR) The purpose of the Office of Insurance Regulation is to ensure that insurance companies licensed to do business in Florida are financially viable, operating within the laws and regulations governing the insurance industry; and offering insurance policy products at fair and adequate rates which do not unfairly discriminate against the buying public. The Florida Office of Insurance Regulation (OIR) has primary responsibility for regulation, compliance and enforcement of statutes relating to the business of insurance and the monitoring of industry markets. The OIR pursues its mission of public protection via oversight of insurance company solvency, policy forms and rates market conduct performance and monitoring new company entrants into the Florida market. The Insurance Commissioner is the head of the OIR. The Commissioner is appointed by the Financial Services Commission, which is comprised of the Governor and Florida Cabinet. B. Department of Financial Services 1. General Duties and Powers: a. Agent and adjuster licensing and investigations The Department of Financial Services monitors the licensing of all applicants including the requirement of fingerprinting and back ground checks. The Department has the duty and power to conduct investigations as it deems necessary of the accounts, records, documents, and transactions pertaining to or affecting the insurance affairs of any general agent, surplus lines agent, adjuster, managing general agent, insurance agent, insurance agency, customer representative, service representative, or other person subject to its jurisdiction, subject to the requirements of state laws. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 66

67 b. Consumer services The Department offers a wide range of consumer services in regard to insurance regulation enforcement. c. Insurance Fraud - The Department of Financial Services is headed by the Chief Financial Officer. The Division of Insurance Fraud (DIF) is the law enforcement arm under the Department and is responsible for investigating all various types of insurance fraud. The various types of insurance fraud the Division investigates include: PIP Fraud Workers' Compensation Fraud (includes claimant and premium avoidance) Vehicle Fraud Application Fraud Licensee Fraud (includes insurance agents and public adjusters) Homeowner's Fraud Healthcare Fraud Unauthorized Entity Fraud d. Receivership - The Department serves as Receiver of any insurer placed into receivership in the State of Florida. The Division of Rehabilitation and Liquidation has the responsibility of performing the duties of the Department of Financial Services in the Department's capacity as Receiver. e. Unclaimed Property - The Chief Financial Officer holds unclaimed property accounts mostly from dormant accounts in financial institutions, insurance and utility companies, securities and trust holdings. f. Other Powers - The department and office each have such additional powers and duties as may be provided by other laws of the state of Florida. C. Office of Insurance Regulation 1. General Duties and Powers See above a. Policy approval authority b. Rates and forms 2. Market Conduct Examinations 3. Agency Actions 4. Investigation approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 67

68 D. Office of Financial Regulation 1. General Duties and Powers See above 2. Agency Actions 3. Investigations E. Definitions 1. Insurance Contract A document that assumes some of the risks of an insured in exchange for a premium. They are considered indemnity contracts. 2. Insurance Transaction Florida laws describe transacting insurance as follows: Describing the benefits or terms of insurance coverage, including premiums or rates of return; Distributing an invitation to contract to prospective purchasers; Making general or specific recommendations as to insurance products; Completing orders or applications for insurance products; Comparing insurance products, advising as to insurance matters, or interpreting policies or coverages; or Offering or attempting to negotiate on behalf of another person a viatical settlement contract as defined in Florida laws. 3. Insurer An authorized insured is one that has applied and received a license to transact insurance in the state of Florida. Once approved, they file their rates and forms and appoint agents and adjusters. 4. Reinsurance Reinsurance is a contract of indemnity against liability by which an insurance company procures another insurance company to insure it against loss or liability by reason of the original insurance. Rather than an insurance company accepting the entire risk, the risk is ceded to other companies or pools to spread the risk. 5. Domestic Company - An insurance company formed and domiciled under the laws of a particular state. 6. Foreign Company - An insurance company formed under the laws of the United States or a particular state of the United States. 7. Alien Company - An insurance company formed under the laws of a country other than the United States, its districts, territories, commonwealths, possessions and the Panama Canal Zone. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 68

69 8. Fraternals - An incorporated society or order, without capital stock, that is operated on the lodge system and conducted solely for the benefit of its members and their beneficiaries, and not for profit. Fraternals offer insurance that is available only to their members. Most write only life and health insurance. 9. Authorized and Unauthorized Companies/Admitted and Non-admitted Companies - A company approved to do business in a given state is known as an admitted company, and is considered to be authorized. Conversely, a nonadmitted company is said to be unauthorized and cannot conduct business in that state. Once a company is approved they are given a certificate of authority to operate in the state. The insurers will then file their rates and forms with the insurance department and begin the process of appointing agents or market their products through other means. Sometimes a company may operate in a state and not be considered an admitted company. These companies are known as surplus lines companies and market their products through surplus lines agents. Surplus lines agents collect a premium tax on all business written through surplus lines companies which is remitted to the state. Surplus lines companies do not file their rates and forms nor do they participate in the state s guaranty funds that pay covered losses of insolvent insurers. Lloyds of London is an example of such a company. 10. Stock and Mutual Companies - Stock Company - an incorporated insurance company with its capital divided into shares. Stock companies are owned by their stockholders. Mutual Company - an incorporated insurance company without permanent stock that is owned by its policyholders. 11. Risk Retention Group - In 1981, Congress passed the Liability Risk Retention Act to give product manufacturers more options when insuring against product liability. To facilitate this process, the Act allowed product manufacturers to establish group self-insurance programs or group captive insurance companies, called risk retention groups, to protect them against product liability exposures and to purchase liability insurance on a group basis through purchasing groups. The Act accomplished this by limiting the states authority to regulate product liability insurance. Risk retention groups and purchasing groups are regulated in the states where they are domiciled but they can transact business in all other states. This exempts them from state insurance regulation and guaranty funds. In 1986 the Act was amended giving the right to form risk retention groups and purchasing groups to nearly all businesses. They are prohibited from writing workers compensation and personal lines insurance. 12. Unlicensed Entities Those that have not received approval to transact insurance in Florida. 13. Certificate of Authority A license for an insurer to transact insurance in Florida. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 69

70 F. Licensing 1. Purpose The purpose of a license is to monitor and regulate those that would seek to be licensed or those that are currently licensed. Licensing is the process by which an agency of state government or other jurisdiction grants permission to individuals to engage in the practice of, and prohibits all others from legally practicing, a particular profession, vocation, or occupation profession. By ensuring a minimum level of competence, the licensing process protects the general public. License and appointment required; agents, customer representatives, adjusters, insurance agencies, service representatives, managing general agents. No person may be, act as, or advertise or hold himself or herself out to be an insurance agent, insurance adjuster, or customer representative unless he or she is currently licensed by the department and appointed by an appropriate appointing entity or person. The person must be at least 18 years of age. 2. License Types a. Agent - No agent or customer representative shall solicit or otherwise transact as agent or customer representative, or represent or hold himself or herself out to be an agent or customer representative as to, any kind or kinds of insurance as to which he or she is not then licensed and appointed. No person shall be, act as, or represent or hold him or herself out to be a service representative unless he or she then holds a currently effective service representative license and appointment. This does not apply as to similar representatives or employees of casualty insurers whose duties are restricted to health insurance. No person shall be, act as, or represent or hold him or herself out to be a managing general agent unless he or she then holds a currently effective managing general agent license and appointment. An individual employed by a life or health insurer as an officer or other salaried representative may solicit and effect contracts of life insurance or annuities or of health insurance, without being licensed as an agent, when and only when he or she is accompanied by and solicits for and on the behalf of a licensed and appointed agent. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 70

71 b. Adjuster - The following are adjuster applicant requirements: 1. Is a natural person at least 18 years of age. 2. Is a United States citizen or legal alien who possesses work authorization from the United States Bureau of Citizenship and Immigration Services and a bona fide resident of this state. 3. Is trustworthy and has such business reputation as would reasonably assure that the applicant will conduct his or her business as insurance adjuster fairly and in good faith and without detriment to the public. 4. Has had sufficient experience, training, or instruction concerning the adjusting of damage or loss under insurance contracts, other than life and annuity contracts, is sufficiently informed as to the terms and the effects of the provisions of such types of contracts, and possesses adequate knowledge of the insurance laws of this state relating to such contracts as to enable and qualify him or her to engage in the business of insurance adjuster fairly and without injury to the public or any member thereof with whom he or she may have relations as an insurance adjuster and to adjust all claims in accordance with the policy or contract and the insurance laws of this state. 5. Has passed any required written examination or has met one of the permitted exemptions. No examination is required of an applicant who has been designated a CPCU and has been engaged in the insurance business within the last four years. Once the applicant is licensed, he or she must be appointed by an insurance company licensed in the state of Florida. The license is valid for a two- year period. c. Agency - The Department may issue a license as an insurance agency to any person only after such person files a written application with the department and qualifies for such license. An application for an insurance agency license must be signed by the owner or owners of the agency. If the agency is incorporated, the application shall be signed by the president and secretary of the corporation. The application for an insurance agency license must include: 1. The name of each majority owner, partner, officer, and director of the insurance agency. 2. The residence address of each person required to be listed in the agency application. 3. The name of the insurance agency and its principal business address. 4. (d)the location of each agency office and the name under which each agency office conducts or will conduct business. 5. The name of each agent to be in full-time charge of an agency office and specification of which office. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 71

72 3. Appointments An appointment is authority given by an insurer or employer to a licensee to transact insurance or adjust claims on behalf of the insurer or employer. All initial appointments must be submitted to the Department on a monthly basis no later than 45 days after the date of the appointment. All appointments will be effective as of the date requested on the appointment form. Failure to notify the Department within the required time period will result in the appointing entity being assessed a delinquent fee of $250 per appointee. Delinquent fees must be paid by the appointing entity and may not be charged to the appointee. The appointment of an agent or adjuster will continue in force until suspended, revoked or otherwise terminated, but subject to a renewal request filed by the appointing entity in the agent s or adjuster s birth month as to natural persons or license date as to entities and every 24 months thereafter, accompanied by payment of the renewal appointment fee and taxes as required by law. Each appointing entity must file with the Department the lists, statements, and information as to appointees whose appointments are being renewed or terminated, accompanied by payment of the applicable renewal fees and taxes as prescribed by law, by a date set forth by the Department following the month during which the appointments will expire. 4. License Requirements: Florida residents applying for any type of insurance license must: Be at least 18 years of age Be a United States citizen or legal alien who possesses work authorization from the United States Immigration and Naturalization Service and a bona fide resident of the state of Florida Submit an online application at Submit a set of fingerprints via Live Scan. a. Education An applicant must have completed an approved prelicensing course before taking the state licensing examination. b. Application The applicant must file an application with the Department. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 72

73 c. Background Check Background checks are required as well as fingerprinting. An applicant for a license as an agent, customer representative, adjuster, service representative, managing general agent, or reinsurance intermediary must submit a set of the individual applicant s fingerprints, or if the applicant is not an individual, a set of the fingerprints of the sole proprietor, majority owner, partners, officers, and directors, to the department and must pay the fingerprint processing fee. Fingerprints will be used to investigate the applicant s qualifications. The fingerprints must be taken by a law enforcement agency, designated examination center, or other department-approved entity. The department will require all designated examination centers to have fingerprinting equipment and to take fingerprints from any applicant or prospective applicant who pays the applicable fee. The department may not approve an application for licensure as an agent, customer service representative, adjuster, service representative, managing general agent, or reinsurance intermediary if fingerprints have not been submitted. d. Examination The applicant must take and pass the required examination. 5. Maintaining a License: a. Continuing education Currently 24 hours of CE is required every two years including 3 hours in the subject of ethics. For compliance periods ending 10/31/14, requirement will include 5 hours in the subject of law and ethics and 19 hours of elective credits. b. Communicating with the Department: Change of Address - All licensees (except Limited Surety/Bail Bond Agents) must report a change in phone number, home, business, mailing address, or address with the Department of Financial Services within 30 days of the change (Section , Florida Statutes) which must be done through the licensee s MyProfile account on-line. Failure to notify the department can result in administrative penalties. If you have an agency, the same must be done through the agency s MyProfile account. Licensees who legally change their name (marriage, divorce) must submit a request along with supporting documentation (marriage certificate, social security card, etc.) to the Department s mailing address. c. Record keeping Each licensee must keep and make available to the Department or Office books, accounts, and records as will enable the Department or Office to determine whether such licensee is complying with the provisions of this code. Every licensee must preserve books, accounts, and records pertaining to a premium payment for at least 3 years after payment; provided, however, the preservation of records by computer or photographic reproductions or records in photographic form constitutes compliance with this requirement. The 3-year requirement does not apply to insurance binders when no policy is ultimately issued and no premium is collected. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 73

74 d. Criminal and Administrative Actions: Procedure for Refusal, Suspension, or Revocation of License - If any licensee is convicted by a court of a violation of the insurance code or a felony, the licenses and appointments of such person will be immediately revoked by the Department or Office. The licensee may subsequently request a hearing provided by state law, the Department or Office will expedite any such requested hearing. The sole issue at such hearing will be whether the revocation should be rescinded because such person was not in fact convicted of a violation of this code or a felony. Duration of Suspension or Revocation - The Department or Office will, in its order suspending a license or appointment or in its order suspending the eligibility of a person to hold or apply for such license or appointment, specify the period during which the suspension is to be in effect; but such period may not exceed two years. Surrender of License - Though issued to a licensee, all licenses issued are at all times the property of the State of Florida; and, upon notice of any suspension, revocation, refusal to renew, failure to renew, expiration, or other termination of the license, such license will no longer be in force and effect. Administrative Fine In Lieu of or in Addition To Suspension, Revocation, or Refusal of License, Appointment, or Disapproval - If the Department or Office finds that one or more grounds exist for the suspension, revocation, or refusal to issue, renew, or continue any individual license or appointment, the Department or Office may, in its discretion, in lieu of or in addition to such suspension or revocation, or in lieu of such refusal, or disapproval, and except on a second offense or when such suspension, revocation, or refusal is mandatory, impose upon the licensee or appointee an administrative penalty in an amount up to $500 or, if the Department or Office has found willful misconduct or willful violation on the part of the licensee or appointee, up to $3,500. The administrative penalty may, in the discretion of the Department or Office, be augmented by an amount equal to any commissions received by or accruing to the credit of the licensee or appointee in connection with any transaction as to which the grounds for suspension, revocation, or refusal related. The Department or Office may allow the licensee or appointee a reasonable period, not to exceed 30 days, within which to pay the amount of the penalty so imposed. If the licensee or appointee fails to pay the penalty in its entirety to the Department or Office within the period so allowed, the license, appointments, approval, or status of that person will stand suspended or revoked or issuance, renewal, or continuation will be refused, as the case may be, upon expiration of such period. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 74

75 Probation - If the Department or Office finds that one or more grounds exist for the suspension, revocation, or refusal to renew or continue any license or appointment issued under this part, the Department or Office may, in its discretion, except when an administrative fine is not permissible under state law or when such suspension, revocation, or refusal is mandatory, in lieu of or in addition to such suspension or revocation, or in lieu of such refusal, or in connection with any administrative monetary penalty, place the offending licensee or appointee on probation for a period, not to exceed two years, as specified by the Department or Office in its order. Restitution - If any ground exists for the suspension, revocation, or refusal of a license or appointment, the Department or Office may, in addition to any other penalty authorized under this chapter, order the licensee to pay restitution to any person who has been deprived of money by the licensee's misappropriation, conversion, or unlawful withholding of moneys belonging to insurers, insureds, beneficiaries, or others. In no instance will the amount of restitution required to be paid under this section exceed the amount of money misappropriated, converted, or unlawfully withheld. e. Appointments: Appointment of Agent or Other Representative - Each appointing entity or person designated by the department to administer the appointment process appointing an agent, adjuster, service representative, customer representative, or managing general agent in this state must file the appointment with the Department or Office and, at the same time, pay the applicable appointment fee and taxes. Each appointing entity must advise the Department or Office in writing within 15 days after it or its general agent, officer, or other official becomes aware that an appointee has pleaded guilty or nolo contendere to or has been found guilty of a felony after being appointed. Any law enforcement agency or state attorney s office that is aware that an agent, adjuster, service representative, customer representative, or managing general agent has pleaded guilty or nolo contendere to or has been found guilty of a felony must notify the Department or Office of such fact. Upon the filing of an information or indictment against an agent, adjuster, service representative, customer representative, or managing general agent, the state attorney must immediately furnish the Department or Office a certified copy of the information or indictment. Each licensee must advise the department in writing within 30 days after having been found guilty of or having pleaded guilty or nolo contendere to a felony or a crime punishable by imprisonment of one year or more under the laws of the United States, any state of the United States, or any other country, without regard to whether a judgment of conviction has been entered by the court having jurisdiction of such cases. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 75

76 A 60-day notice must be sent to the appointee in case of termination. If the appointment is terminated the department must be advised. As soon as possible and at all events within 30 days after terminating the appointment of an appointee, other than as to an appointment terminated by the appointing entity s failure to continue or renew it, the appointing entity shall file written notice thereof with the department, together with a statement that it has given the appointee notice thereof. G. Agent Responsibilities 1. Fiduciary Capacity a. Definition Fiduciary - A person or institution which has responsibility for the money, property or financial affairs of another. A person or institution acting as a fiduciary is acting in a fiduciary capacity. b. Premium Accountability All premiums, return premiums, or other funds belonging to insurers or others received by an agent, insurance agency, customer representative, or adjuster in transactions under the license are trust funds received by the licensee in a fiduciary capacity. An agent or insurance agency must keep the funds belonging to each insurer for which an agent is not appointed, other than a surplus lines insurer, in a separate account so as to allow the Department or Office to properly audit such funds. The licensee in the applicable regular course of business shall account for and pay the same to the insurer, insured, or other person entitled thereto. The licensee must keep and make available to the Department or Office books, accounts, and records as will enable the Department or Office to determine whether such licensee is complying with the provisions of this code c. Separate Account Requirements Separate bank accounts are required. The commingling of the insured s and insurer s monies is prohibited. 2. Commissions and Compensation/Charges for Extra Services It is unlawful to knowingly collect as a premium or charge for insurance any sum in excess of or less than the premium or charge applicable to such insurance, in accordance with the applicable classifications and rates as filed with and approved by the office, and as specified in the policy; or, in cases when classifications, premiums, or rates are not required by this code to be so filed and approved, premiums and charges collected from a Florida resident in excess of or less than those specified in the policy and as fixed by the insurer. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 76

77 Exception - Florida Statute (5) permits an agent to charge a $10 per policy fee for PIP/PD policies only. The statute reads "A licensed general lines agent may charge a per-policy fee not to exceed $10 to cover the administrative costs of the agent associated with selling the motor vehicle insurance policy if the policy covers only personal injury protection coverage as provided by s and property damage liability coverage as provided by s and if no other insurance is sold or issued in conjunction with or collateral to the policy. The fee is not considered part of the premium." 3. Reply to DFS and/or Office of Insurance Regulation - Response to Department Inquiry: Every insurer, upon receiving any written or oral inquiry from the Department concerning a claim, must, within 21 calendar days of receipt of this inquiry, furnish the Department with an appropriate response. The Department may require a written response as it deems necessary. 4. Ethics This is the conduct of an insurance agent toward insureds and insurers. Agents must be properly trained and educated in the lines of insurance sold, act responsibly in the handling of funds, must not misrepresent the insurance contracts and must always serve the needs of the client. H. Insurance Guaranty Fund Guaranty associations ease the burden on policyholders and claimants of the insolvent insurer by immediately stepping in to assume responsibility for most policy claims following liquidation. The coverage guaranty associations provide is fixed by the policy or state law; they do not offer a replacement policy. Covered claim means an unpaid claim, including one of unearned premiums, which arises out of, and is within the coverage, and not in excess of the policy limits. The maximum amount FIGA will cover is $300,000 with special limits applying to (1) damages to structure and contents on homeowners claims and (2) on condominium and homeowners association claims. For damages to structure and contents on homeowners claims the FIGA cap is an additional $200,000. For condominium and homeowners association claims the cap will be the lesser of policy limits or $100,000 multiplied by the number of units in the association. No claim will be paid in excess of this cap. All claims are subject to a $100 FIGA deductible in addition to any deductible identified in your policy. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 77

78 I. Marketing Practices 1. Unfair Methods of Competition a. Sliding - Sliding is the act or practice of: 1. Representing to the applicant that a specific ancillary coverage or product is required by law in conjunction with the purchase of insurance when such coverage or product is not required; 2. Representing to the applicant that a specific ancillary coverage or product is included in the policy applied for without an additional charge when such charge is required; or 3. Charging an applicant for a specific ancillary coverage or product, in addition to the cost of the insurance coverage applied for, without the informed consent of the applicant. b. Coercion - A person may not enter into any agreement to commit any act of coercion, intimidation or boycott resulting in unreasonable restraint of or monopoly in, the business of insurance. c. Misrepresentation - No person shall make, issue, circulate or cause to be made, issued or circulated, any estimate, circular, statement, sales presentation, omission or comparison which: Misrepresents the benefits, advantages, conditions or terms of any insurance policy. Is misleading or is a misrepresentation as to the financial condition of any person. Uses any name or title of any insurance policy or class of insurance policies misrepresenting the true nature thereof. d. Defamation - Any false or malicious communication, written or oral, that injures another's reputation, fame or character. Individuals and companies both can be defamed. Unethical agents practice defamation by spreading rumors or falsehoods about the character of a competing agent or the financial condition of another insurance company. Both of these actions are considered illegal. e. False Advertising This is basically the same as misrepresentation. f. Unfair Discrimination - Neither agents or insurance companies are permitted to discriminate against perspective insureds. This means that a person cannot be given a different rate for coverage than a person in identical circumstances. They may not discriminate because of race, religion, type of job, where they live or their financial status. g. Other Unfair Practices This includes a variety of items among which is the fact that the agent is acting in a fiduciary capacity and is not permitted to co-mingle the insured s or insurer s funds with their own. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 78

79 h. Unfair Claims Practices: Attempting to settle claims on the basis of an application, when serving as a binder or intended to become a part of the policy, or any other material document which was altered without notice to, or knowledge or consent of, the insured; A material misrepresentation made to an insured or any other person having an interest in the proceeds payable under such contract or policy, for the purpose and with the intent of effecting settlement of such claims, loss, or damage under such contract or policy on less favorable terms than those provided in, and contemplated by, such contract or policy; or Failing to adopt and implement standards for the proper investigation of claims; Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue; Failing to acknowledge and act promptly upon communications with respect to claims; Denying claims without conducting reasonable investigations based upon available information; Failing to affirm or deny full or partial coverage of claims, and, as to partial coverage, the dollar amount or extent of coverage, or failing to provide a written statement that the claim is being investigated, upon the written request of the insured within 30 days after proof-of-loss statements have been completed; Failing to promptly provide a reasonable explanation in writing to the insured of the basis in the insurance policy, in relation to the facts or applicable law, for denial of a claim or for the offer of a compromise settlement; Failing to promptly notify the insured of any additional information necessary for the processing of a claim; or Failing to clearly explain the nature of the requested information and the reasons why such information is necessary. Failing to pay personal injury protection insurance claims within the time periods required by Florida statutes. Failing to pay undisputed amounts of partial or full benefits owed under first-party property insurance policies within 90 days after an insurer receives notice of a residential property insurance claim, determines the amounts of partial or full benefits, and agrees to coverage, unless payment of the undisputed benefits is prevented by an act of God, prevented by the impossibility of performance, or due to actions by the insured or claimant that constitute fraud, lack of cooperation, or intentional misrepresentation regarding the claim for which benefits are owed. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 79

80 Failure to maintain complaint handling procedures - Failure of any person to maintain a complete record of all the complaints received since the date of the last examination. For purposes of this paragraph, complaint means any written communication primarily expressing a grievance. i. Fraud - An intentional act designed to deceive and induce another party to part with something of value. Fraud may occur before or after a policy has been issued. Fraud may also involve misrepresentation and/or concealment but not all acts of misrepresentation or concealment are acts of fraud. j. Controlled Business The department will not grant to continue to renew an insurance license where the purpose is to write contracts covering himself or herself or family members; officers, directors, stockholders, partners, or employees of a business in which he or she or a family member is engaged; or the debtors of a firm, association, or corporation of which he or she is an officer, director, stockholder, partner, or employee. k. Twisting - Twisting is a violation of insurance laws. Making unfair or inaccurate comparisons to induce a person to drop their current coverage is an unfair trade practice. l. Churning - Churning is the practice whereby policy values in an existing life insurance policy or annuity contract, including, but not limited to, cash, loan values, or dividend values, and in any riders to that policy or contract, are directly or indirectly used to purchase another insurance policy or annuity contract with that same insurer for the purpose of earning additional premiums, fees, commissions, or other compensation: Without an objectively reasonable basis for believing that the replacement or extraction will result in an actual and demonstrable benefit to the policyholder; In a fashion that is fraudulent, deceptive, or otherwise misleading or that involves a deceptive omission; When the applicant is not informed that the policy values including cash values, dividends, and other assets of the existing policy or contract will be reduced, forfeited, or used in the purchase of the replacing or additional policy or contract, if this is the case; or Without informing the applicant that the replacing or additional policy or contract will not be a paid-up policy or that additional premiums will be due, if this is the case. Churning by an insurer or an agent is an unfair method of competition and an unfair or deceptive act or practice. approximately 250 practice questions dealing with General Insurance Laws & Regulations. QUICK NOTES - 80

81 m. Rebating Rebating occurs if the buyer of an insurance policy receives any part of the agent's commission or anything of significant value as an inducement to purchase a policy. State regulations are very strict in this respect and are designed to prohibit discrimination in favor of, or against, policy owners. In Florida, the practice of rebating is legal under the following circumstances: No insurance agency agent shall rebate any portion of a commission except as follows: The rebate shall be available to all insureds in the same actuarial class. The rebate shall be in accordance with a rebating schedule filed by the agent with the insurer issuing the policy to which the rebate applies. The rebating schedule shall be uniformly applied in that all insureds who purchase the same policy through the agent for the same amount of insurance receive the same percentage rebate. Rebates shall not be given to an insured with respect to a policy purchased from an insurer that prohibits its agents from rebating commissions. The rebate schedule is prominently displayed in public view in the agent s place of doing business and a copy is available to insureds on request at no charge. The age, sex, place of residence, race, nationality, ethnic origin, marital status, or occupation of the insured or location of the risk is not utilized in determining the percentage of the rebate or whether a rebate is available. The insurance agency agent must maintain a copy of all rebate schedules for the most recent 5 years and their effective dates. No rebate may be withheld or limited in amount based on factors which are unfairly discriminatory. No rebate may be given which is not reflected on the rebate schedule. No rebate may be refused or granted based upon the purchase or failure of the insured or applicant to purchase collateral business. Advertising gifts are permitted for the purpose of advertising which is any article of merchandise having a value of not more than $25. approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 81

82 II. Florida Statutes, Rules and Regulations Pertinent to General Lines Insurance (17% of State Exam) A. Insurance Contracts 1. Renewal, Nonrenewal, Cancellation: Commercial, Homeowners, Personal Auto and Casualty Policies An insurer issuing a policy providing coverage for workers compensation and employer s liability insurance, property, casualty, except mortgage guaranty, surety, or marine insurance, other than motor vehicle insurance, must give the first-named insured at least 45 days advance written notice of nonrenewal or of the renewal premium. If the policy is not to be renewed, the written notice shall state the reason or reasons as to why the policy is not to be renewed. This requirement applies only if the insured has furnished all of the necessary information so as to enable the insurer to develop the renewal premium prior to the expiration date of the policy to be renewed. When cancellation is for nonpayment of premium, at least 10 days written notice of cancellation accompanied by the reason for cancellation must be given. Florida Cancellation Provisions - Under the cancellation condition, Florida law requires an insurer to give 90 days advance written notice of cancellation, including the reasons for such cancellation, except for cancellation for nonpayment of premium or cancellation during the first 90 days during which the insurance is in force. For cancellation for nonpayment of premium, 10 days written notice of cancellation, accompanied by the reason, must be given. For cancellation other than nonpayment of premium during the first 90 days the policy is in force, at least 20 days advance notice, and the reason for the cancellation, must be given, except where there has been material misrepresentation or misstatement or a failure to comply with the underwriting requirements of the insurer. Florida Nonrenewal Provisions - The insurer must give 90 days written notice of nonrenewal, stating the reasons for nonrenewal or, if it elects to renew the policy, 45-days written notice of the renewal premiums. Personal Auto Cancellation - The following Florida laws that affect the cancellation or nonrenewal of automobile insurance policies: approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 82

83 a) During the first 60 days of coverage for a new auto policy, the insurer may cancel for any reason except discrimination. Cancellation is also prohibited based upon residence, age lawful occupation of the individual, or location of the risk. For policies providing mandatory PIP and property damage liability, the law prohibits cancellation for nonpayment of premium unless: 1) payment was made by a dishonored check; or 2) the insured failed to respond to a valid notice of additional premium. b) After the first 60 days the new policy has been in affect, for the remainder of the new term, and after renewal, the insurer, may cancel only for non-payment of premium, material breach of the contract or fraud, or suspension or revocation of the driver s license or registration of an operator during the policy term within the previous 180 days. When cancellation is permitted, a 45-day notice to the insured is required. A 10-day notice is allowed for non-payment of premium. A reason or reasons must be stated in the notice to the insured as well as a notice to the insured that the cancellation may be contested at a hearing with the insurance department. c) A non renewal notice requires a 45 day notice. 2. Proof of Loss - A proof of loss is a formal statement given to the carrier regarding a loss. All proof of loss statements must prominently display the following statement: Any person who, with the intent to injure, defraud, or deceive any insurer or insured, prepares, presents, or causes to be presented a proof of loss or estimate of cost or repair of damaged property in support of a claim under an insurance policy knowing that the proof of loss or estimate of claim or repairs contains any false, incomplete, or misleading information concerning any fact or thing material to the claim commits a felony of the third degree, punishable as provided by law. B. Payment of Claims Within 90 days after an insurer receives notice of a property insurance claim from a policyholder, the insurer must pay or deny such claim or a portion of the claim unless the failure to pay such claim or a portion of the claim is caused by factors beyond the control of the insurer which reasonably prevent such payment. Any payment of a claim or portion of a claim paid 90 days after the insurer receives notice of the claim, or paid more than 15 days after there are no longer factors beyond the control of the insurer which reasonably prevented such payment, whichever is later, must bear interest. Interest begins to accrue from the date the insurer receives notice of the claim. approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 83

84 C. Premium Financing "Premium finance agreement" means a promissory note or other written agreement by which an insured promises or agrees to pay to, or to the order of, a premium finance company the amount advanced or to be advanced under the agreement to an insurer or to an insurance agent, in payment of premiums on an insurance contract, together with a service charge as authorized and limited by law. D. Property 1. Hurricane Deductible Hurricane deductibles are based on the total insured value of the property. Unless homeowners choose a higher amount, a hurricane deductible is $500 for dwellings under $100,000 and 2 percent for dwellings insured for $100,000 or over. Florida statute states that insurers must offer hurricane deductibles of $500, 2%, 5% and 10%. Selecting a high Florida law requires that hurricane deductibles apply on an annual basis to hurricane losses that occur in a calendar year. For that reason, policyholders are encouraged to report all windstorm-related damage as it occurs. If a property is damaged by more than one hurricane in a calendar year, insurers may apply a deductible to the subsequent hurricane that is the greater of the: Remaining amount of the hurricane deductible, or The amount of the deductible that applies to all other perils. 2. Wind Mitigation/Code Issues - Many property owners receive wind mitigation inspections to assess the preparedness of their homes and businesses in resisting the effects of windstorm damage or loss. In Florida, wind mitigation inspections are not required by insurance companies or mortgage lenders it s totally optional, unlike some derivative of the four-point home inspection (which assesses the status of a property s electrical, HVAC, and plumbing systems plus the roofing) or a more intensive roof condition inspection. 3. Catastrophic Ground Collapse (sinkholes) - Florida law requires authorized insurers to cover catastrophic ground cover collapse, but damage caused by a sinkhole may not be covered by a property insurance policy. That s because the law defines catastrophic ground cover collapse differently from sinkholes. dissolved by groundwater. A sinkhole may form by collapse into subterranean voids created by dissolution (the dissolving) of limestone or dolostone or by the subsidence as these strata are dissolved. approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 84

85 Catastrophic ground cover collapse is defined as geological activity that results in all of the following: 1) The abrupt collapse of the ground cover; 2) A depression in the ground cover clearly visible to the naked eye; 3) Structural damage to the building including the foundation; and 4) The insured structure being condemned and ordered to be vacated by the government agency authorized by law to issue such an order for that structure. This means that if a home is damaged by sinkhole activity, but does not meet all four criteria for catastrophic ground cover collapse for instance, there may be foundation cracks, but the home is still livable the insurance may not pay for the damage if the insured does not have sinkhole coverage. All insurance companies licensed to do business must offer sinkhole coverage 4. Hurricane Occurrence - a hurricane that is named by the National Hurricane Center and comes with a hurricane warning. 5. Fungi - It s common that water losses produce mold if not properly remediated. Time and time again, you hear that mold, fungus or wet rot is a common exclusion in homeowner insurance policies. The question is simple- is mold covered or not? The simple answer is that in most policies mold that happens over time is not usually covered. However, in some instances, it may be argued that mold may be covered under an insurance policy when it is a result of a covered loss and is the result or proximate cause of the covered loss. A good example of when mold may be covered is at the time of a plumbing loss such as a burst water pipe. Because a burst water pipe is a covered loss, any mold resulting is considered an ensuing loss and may be covered. Some are limiting coverage to other perils such as fire or lightning as the cause of loss and the water to put out the fire eventually causes mold. 6. Loss assessment (HO-6) Provides a $1,000 limit for access by condo association for property claim accessed to unit owners. 7. Additional perils (HO-2, 3, 4, 6) See homeowner discussion 8. Exclusions See homeowner discussion 9. Loss Settlement See dwelling and homeowner discussion 10. Mediation or Appraisal Most policies covering property contains an appraisal clause which includes mediation to determine the value of damaged property in a covered claim. 11. Loss Payment Previously discussed (acv, replacement cost or market value). approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 85

86 E. Citizens Property Insurance Corporation (Citizens) Following Hurricane Andrew s catastrophic damages to South Florida properties in 1992, several insurance carriers went out of business, while many others were forced to cut back on their policy writings. To provide a market for those residential properties unable to obtain cover in the voluntary market, the Florida Residential Property and Casualty Underwriting Association (FRPCJUA) was created by the Florida state legislature. Subsequently, in 2001 legislative session, the FRPCJUA along with the Florida Windstorm Underwriting Association (FWUA) were merged together under the umbrella of the program now called Citizens Property Insurance Corporation (Citizens). To be eligible, the homeowner or dwelling fire applicant must certify on the application, along with the producer, that they are unable to obtain, and have not received an offer, for residential property insurance from any authorized insurer. A policy may be replaced with a policy from an authorized insurer at any time during the policy period with a 60-day notice. Additionally, because of the On-Site Keep-Out Program, an applicant may never even get a policy issued through the Citizens if an authorized insurer underwrites and take the application at the Service Company location prior to Service Company processing the application. Under this program the original effective date bound by the agent is honored and the policy cannot be cancelled for a period of one (1) year, unless the applicant would not have been eligible for coverage under the Citizens underwriting rules. Commissions under either of these depopulation programs are payable in accordance with Florida law. One major change, however, with the introduction of Citizens was the enactment of Consumer Choice legislation. This legislation asserts the right of consumers to select and maintain their agent of choice. All keep-out and take-out plans of Citizens are subject to the Consumer Choice Statute of Florida. F. Surplus Lines 1. Florida Surplus Lines Service Office Florida created a nonprofit association to be known as the Florida Surplus Lines Service Office. All surplus lines agents shall, as a condition of holding a license as a surplus lines agent in this state, be deemed to be members of this association and shall report to and file with the service office a copy of or information on each surplus lines insurance policy or document as provided in the plan of operation adopted. The service office shall immediately report the particulars of any unfiled policy to the department for enforcement of compliance with the Florida Surplus Lines Law. approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 86

87 2. Eligibility for Export - No insurance coverage shall be eligible for export (place insurance with a surplus lines company) unless it meets all of the following conditions: (a)the full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state, and the amount of insurance exported shall be only the excess over the amount so procurable from authorized insurers. Surplus lines agents must verify that a diligent effort has been made by requiring a properly documented statement of diligent effort from the retail or producing agent. However, to be in compliance with the diligent effort requirement, the surplus lines agent s reliance must be reasonable under the particular circumstances surrounding the export of that particular risk. Reasonableness shall be assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent. Declinations must be documented on a risk-by-risk basis. If it is not possible to obtain the full amount of insurance required by layering the risk, it is permissible to export the full amount. (b)the premium rate at which the coverage is exported shall not be lower than that rate applicable, if any, in actual and current use by a majority of the authorized insurers for the same coverage on a similar risk. A reasonable per-policy fee, not to exceed $35, may be charged by the filing surplus lines agent for each policy certified for export. G. Auto Insurance Florida Automobile No-Fault Law - Various states have enacted some form of an automobile no-fault law. The purpose is to allow payment to injured parties without regard to establishing negligence or legal liability. Most of these laws are intended to avoid court proceedings and thus reduce costs and the overcrowding of the courts. Another purpose is to speed up the payment of certain types of claims to the injured parties. Benefits and Coverages - The no-fault plan applies only to bodily injury claims and not to property damage claims. To collect under a property damage claim one would have to prove negligence on the part of the guilty party that caused the damage. The insured could also collect under his/her own physical damage coverage. This is the established legal system method of dealing with these types of claims. The law requires Personal Injury Protection (PIP), to be carried by owners of vehicles. Penalties apply for failing to carry the proper coverage. This coverage is first party coverage and pays without regard to fault. approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 87

88 Definition - The no-fault law applies to self-propelled vehicles with four or more wheels, subject to motor vehicle registration and designed for use on Florida s highways. Certain types of vehicles and/risks are not required to comply with the law. These include public school transportation used to transport more than five passengers, government owned vehicles, taxicabs and limousines and vehicles used for mass transit. The owner of a registered vehicle is required to provide proof of insurance at the time the vehicle is registered each year. In some cases, in lieu of insurance, the owner may post a bond, cash or even qualify as a self-insured. A non-resident using a vehicle not registered in Florida, must still carry PIP coverage on any such eligible vehicle that has been physically garaged in Florida for 90 of the preceding 365 days. Penalties - There are three penalties that apply should an auto registrant fail to comply with the no-fault insurance requirements: 1. The owner is denied immunity from legal liabilities that are granted to others who comply. 2. The owner is personally responsible for payment of PIP benefits to those entitled to such benefits. 3. The owner s driver s license and vehicle registration are subject to suspension. Florida Automobile No-Fault Law - Various states have enacted some form of an automobile no-fault law. The purpose is to allow payment to injured parties without regard to establishing negligence or legal liability. Most of these laws are intended to avoid court proceedings and thus reduce costs and the overcrowding of the courts. Another purpose is to speed up the payment of certain types of claims to the injured parties. Benefits and Coverages - The no-fault plan applies only to bodily injury claims and not to property damage claims. To collect under a property damage claim one would have to prove negligence on the part of the guilty party that caused the damage. The insured could also collect under his/her own physical damage coverage. This is the established legal system method of dealing with these types of claims. The law requires Personal Injury Protection (PIP), to be carried by owners of vehicles. Penalties apply for failing to carry the proper coverage. This coverage is first party coverage and pays without regard to fault. Penalties - There are three penalties that apply should an auto registrant fail to comply with the no-fault insurance requirements: 1. The owner is denied immunity from legal liabilities that are granted to others who comply. 2. The owner is personally responsible for payment of PIP benefits to those entitled to such benefits. 3. The owner s driver s license and vehicle registration are subject to suspension. approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 88

89 1. Required coverages a. Financial Responsibility Law - The operator of a motor vehicle that has been convicted of certain traffic violations or has been involved in a traffic accident is required, by law, to meet the operative provision of state law. That person must respond for such damages and show proof of financial responsibility to respond to damages in future accidents as a requisite to his/her future exercise of driving privileges. Operation of the law is triggered by an accident which involves: bodily injury or property damage when a vehicle is rendered inoperative or certain serious traffic violations including driving under the influence and committing a felony with a motor vehicle. If, at the time of the occurrence, there is auto liability insurance in force with minimum split limits of at least 10/20/10, the law is satisfied. The person or company owning such vehicles can also be a qualified self-insured or post a bond equal to the required limits of 10/20/10. In case of an occurrence in which the vehicle was not insured and self-insurance or a bond did not exist, there are basically two things that must occur to avoid the suspension of the driver s license and the registrations of all vehicles. 1. The legal claims of others must be satisfied up to the required limits of 10/20/ Future certification of satisfying the financial responsibility law. SR-22 is the filing made when insurance is provided to satisfy this requirement. This certification is filed by the insurance company for a three-year period. b. Personal Injury Protection (PIP): Personal Insurance Protection (PIP) is not designed to cover pain and suffering. The coverages addressed are: A. PIP medical benefits pay for 80% of reasonable expenses for medical, surgical, X-ray, dental and rehabilitative services, including prosthetic devices. Medical coverage also includes required ambulance, hospital and nursing services. Other treatment permitted by law for an injured person who relies on religious healing. B. PIP work loss benefit pays up to 60% loss of gross income and 100% of household services that are performed by others while the injured person cannot perform them. C. PIP death benefit is $5,000. approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 89

90 PIP Coverage Cap - The maximum limit under PIP is $10,000. If $4,000 is spent on medical, $5,000 on loss of wages and then the person dies, only $1,000 is left for the death benefit. An additional PIP endorsement increases this $10,000 limit by amounts such as $10,000, $25,000, $40,000 and $90,000. These increases do not affect the $5,000 death benefit limit. As in the Extended PIP, the increased limit applies only to the named insured and family members. Optional PIP Coverages - An extended PIP endorsement is available which increases the medical benefits to 100% and from 60% up to 80% for loss of gross income. The death limit is not affected and remains the same. PIP Deductibles - To reduce costs, it is required that the applicant be offered a choice of deductibles. These range from $250 up to and including $2,000. These deductibles are subtracted from the $10,000 limit and are chosen at the time of the application and upon renewal. Coordination of Benefits - Insurers are required to offer modifications that coordinate coverage with military benefits, or with loss of work benefits excluded. PIP is primary against all other forms of medical and disability insurance coverages. An exception is workers compensation benefits. Workers compensation is considered primary and PIP excess. The law prevents a person from receiving the same amount from others in legal liability actions. Who Is Insured Under PIP? A. Named Insured 1. If the accident occurs in Florida, the named insured is covered while occupying a defined vehicle or if struck as a pedestrian by a defined vehicle. 2. If the accident occurs outside of Florida, the named insured is covered if injured in an insured owned vehicle or one owned by a resident relative if covered for PIP. B. Relatives of the named insured are covered if they are living with the insured and do not own vehicles. Coverage is the same as it is for the named insured with one exception. If the accident occurs outside of Florida, the relative is covered only if occupying the named insured s vehicle. C. Other Insured Persons: If the injured person is not a vehicle owner or entitled to other applicable insurance, the insured s policy would pay the claim if the insured person was occupying the named insured s vehicle. The insured s policy would also pay if the injured person was struck as a pedestrian by the insured s vehicle. approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 90

91 PIP Exclusions: 1. Coverage only applies while occupying an insured vehicle. 2. Injuries to persons operating the vehicle without the insured s consent are excluded. 3. Intentional acts or injuries while committing a felony are not covered. Legal Rights Retained (Tort Exceptions) - As previously mentioned, the PIP coverage is intended to cover medical expenses, loss of income and death. There is an exception for pain, suffering, mental anguish, significant and permanent loss of bodily function, other permanent injury, permanent scarring and/or disfigurement or death. These exceptions allowed for noneconomic losses are known as the threshold. Therefore, legal action can still be brought against the negligent driver for these injuries. Those who have complied with the law are granted limited immunity from suits brought by others but only to the extent of the sums paid or payable under PIP benefits, which is only $10,000. Once the $10,000 has been paid, the injured party still has recourse against the negligent driver if their injuries justify such action. 2. Limits See above PIP limits 3. Uninsured/underinsured Motorists Coverage - The law requires that uninsured motorist coverage with stacked limit coverage be included in every policy that provides autoliability coverage. Stacked limit means the UM limits that apply to two or more vehicles are added together in determining the limit of UM coverage. The insured has three choices: 1. The UM coverage can be rejected. 2. Can elect lower limits than his/her liability coverage limits. 3. Elects non-stacked UM coverage. Non-stacked UM coverage differs from stacked in several ways: The coverage available to the injured person is the applicable limit of coverage on that covered vehicle. If the insureds are occupying a non-owned vehicle and are injured, the highest UM limit on their policy will respond as excess coverage over the coverage provided by the vehicle they were occupying, provided it is not owned by another household family member. UM coverage would not apply to an insured that is injured while occupying any owned vehicle for which UM coverage was not purchased. A family member is not insured for this coverage while in, or on, any vehicle owned by the named insured which is covered on a primary basis by another policy. This coverage must be offered at lower rates. If a person is injured in an accident while not occupying a motor vehicle, he/she may then select the limit of any vehicle insured by the named insured. approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 91

92 It should be remembered that UM coverage is excess coverage in many instances. PIP will pay up to $10,000 for medical expenses, loss of wages and death. This is deducted from the UM payment. Amounts recovered from the uninsured motorist are also considered to be a deduction from the UM limit. Workers compensation and auto medical payment coverages would also be deducted from the limit. The insurer is required to advise the insured, at least annually, of all coverage options available under UM coverage and provide a means of responding to the insurer. UM coverage provides for arbitration in case the insured and the insurer cannot agree on the amount of payment. 4. Cancellation/Nonrenewal - There are two Florida laws that affect the cancellation or non-renewal of automobile insurance policies: During the first 60 days of coverage for a new auto policy, the insurer may cancel for any reason except discrimination. Cancellation is also prohibited based upon residence, age lawful occupation of the individual, or location of the risk. For policies providing mandatory PIP and property damage liability, the law prohibits cancellation for nonpayment of premium unless: 1) payment was made by a dishonored check; or 2) the insured failed to respond to a valid notice of additional premium. After the first 60 days the new policy has been in affect, for the remainder of the new term, and after renewal, the insurer, may cancel only for non-payment of premium, material breach of the contract or fraud, or suspension or revocation of the driver s license or registration of an operator during the policy term within the previous 180 days. When cancellation is permitted, a 45-day notice to the insured is required. A 10- day notice is allowed for non-payment of premium. A reason or reasons must be stated in the notice to the insured as well as a notice to the insured that the cancellation may be contested at a hearing with the insurance department. 5. Treatment of Motorcycles - An endorsement is available to be added under the PAP policy (recreational vehicle) or a separate policy can be purchased. 6. Responsibility for Minors Operating Motor Vehicles In Florida the vicarious liability doctrine applies in that the owner of the vehicle in certain circumstances can be held legally liability. 7. Inspection for Coverage Private passenger motor vehicle insurers providing physical damage coverage, including collision or comprehensive coverage, shall comply with Florida Statutes, regarding pre-insurance inspection requirements. The pre-insurance inspection requirement applies to a motor vehicle policy issued on a private passenger motor vehicle principally garaged in Duval, Palm Beach, Broward, Dade, Orange, Hillsborough, and Pinellas counties. A reinspection is not required when a family member transfers title to another family member. approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 92

93 H. Comparative Negligence Law This determines what the parties are entitled to receive in case of liability claims where both parties are at fault but their percentage of fault is different. If one party is 30% negligent their recovery is reduced 30%. The other party who is 70% negligent will have their recovery reduced 70%. I. Worker s Compensation Workers Compensation Joint Underwriting Association (WCJUA) - The FWCJUA provides a market for those that cannot self-insure or are unable to obtain this important coverage through standard markets. The applicant must have been refused coverage from at least two carriers and does not own any previous unpaid workers compensation coverage premiums to quality for coverage. Market operations are provided by a few servicing carriers and monitored by the FWCJUA Board of Governors. An agent must have a producer agreement with the FWCJUA. The prescribed applications may be submitted with the required deposit premium. Coverage becomes bound at 12:01 AM following the date of receipt at the FWCJUA or such later date as indicated by the agent or insured. The employer then receives a 30-day binder, indicting the servicing carrier assigned the application who also issues the policy, subject to standard policy provisions and rules. J. Florida Automobile Joint Underwriting Association (FAJUA) In some states the Florida Automobile Joint Underwriting Association is referred to as the assigned risk automobile plan. The FAJUA is the method used in providing coverage for those who are unable to obtain automobile insurance in the standard market. Agents can bind coverage and collect premiums for one of the servicing carriers. Coverage is available for residents, non-residents and/or military non-residents with vehicles registered in Florida. The applicant can obtain limits up to 100/300/50 for bodily injury and property damage. Coverage also includes PIP and UM coverage. Medical payments and physical damage coverage can also be purchased. approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 93

94 K. Boiler and Machinery Fills the gaps left by property insurance such as steam boiler explosion and equipment breakdown. Covers equipment on a replacement cost basis unless endorsed to ACV Covers items if owned by, leased by, or operated under the control of the insured. Object can be red tagged and shut down until repaired by an inspector Provides physical damage coverage to owned property and property of others The insured must repair or replace the damaged property within 24 months after the date of the breakdown (unless the time period is extended by the insurer in writing). Loss income can be added Deductibles can vary. Some are on a percentage basis. Some are dollar amounts. Expediting expenses are included to quickly reinstall or repair damaged equipment. Covers newly installed equipment for 90 days L. Health A statutory definition of health insurance in the state of Florida is as follows: Health insurance also known as disability insurance, is insurance of human begins against bodily injury, disablement, or death by accident or accidental means, or the expenses thereof, or against disablement or expense resulting from sickness, and every insurance appertaining thereto. Health insurance does not include workers compensation coverages. Policy Provisions - For you to understand health insurance, you must have knowledge of the contract provisions that distinguish this line of insurance from other types of insurance. The National Association of Insurance Commissioners (NAIC) has developed the model "uniform individual accident and sickness policy provision law" that has resulted in 12 mandatory policy provisions. The following 12 mandatory policy provisions are in accordance with the NAIC model law: 1) Entire Contract - The policy, including all the endorsements, and any attached papers constitute the entire contract of insurance. Therefore, the entire contract means the policy itself, any endorsements and any attached papers, such as the application and any riders. Nothing outside the contract (meaning not attached to or not included in the policy) is considered part of the entire contract. This assures the policyowner that no changes will be made to the contract after it has been issued, even if the insurer makes policy changes that affect all policy sales in the future. Only an executive officer of the insurance company and not the agent can make changes to the policy. approximately 200 practice questions dealing with Florida Laws, Rules & Regulations including Automobile. QUICK NOTES - 94

95 2) Time Limit on Certain Defenses - The purpose of this provision is to limit the period of time in which an insurer may challenge the contract or deny a claim on grounds of material misrepresentation in the application. This is similar to the incontestable provision of an individual life policy. There are two parts to this provision: (1) After two years have elapsed from the date the policy was issued, no material nondisclosures or misstatements (except fraudulent misstatements) made by the applicant may be used to void the policy or deny a claim after the time limit has expired. (2) The insurer cannot deny a claim on the basis of preexisting conditions after expiration of a two year time limit, unless the condition was excluded from coverage under the policy by name or specific description. 3) Grace Period - The policyowner is given a certain number of days after the premium due date to pay the policy premium without penalty and without having the policy lapse for nonpayment of premium. This period of time depends on how the premiums are paid: a) 7 days if the premiums are paid weekly. b) 10 days if the premiums are paid monthly. c) 31 days for all other modes of premium payment. 4) Reinstatement - Provides for placing a lapsed policy, due to nonpayment of premium, back in force. a) If an application is required, and a conditional receipt is issued, reinstatement is effective as of the date the application is approved or, if not approved, within 45 days, unless the insurer has previously notified the insured in writing of its disapproval. b) A reinstated policy covers accidents immediately and sickness ten days after reinstatement. This ten-day period for sickness is called the probationary period and will only occur once while the policy is in force. 5) Notice of Claim - Policyholder must give notice of a claim within 20 days or as soon as reasonably possible. This notice can be given to either the agent or directly to the insurance company. In loss of time contracts, notice of continuation of disability is required at least every six months except in the absence of legal capability. 6) Claim Forms - 15 days after notice of claim, the company will send forms to insured. Proof of loss or insured submits a statement. approximately 200 practice questions dealing with Aviation, Boiler and Health insurance. QUICK NOTES - 95

96 7) Proof of Loss - This provision limits the time within which the insured may file a written proof of loss. A proof of loss is a formal statement given to the carrier regarding a loss. The proof of loss may include a physician's statement or a death certificate. Such proof of loss must be filed within 90 days of loss or, in the case of a continuing loss, within 90 days after the end of a period for which the insurer is liable. If the insured is unable to comply with these requirements, proof of loss must be filed within a reasonable time not exceeding one year. In the event of legal incapacity, no time limit applies. 8) Timely Payment of Claims - The timely of payment of claims provisions requires that claims will be paid immediately upon receipt of proof of loss except for periodic payments, which are to be made as specified in the policy or made at least monthly. Balances unpaid when the policy terminates must be paid immediately upon receipt of due proof of loss. 9) Payment of Claims - Death benefits from any group policy or individual accident policy are paid to a named beneficiary otherwise to the estate of the insured. A facility of payment provision may be included for payments up to $1,000 if the beneficiary is a minor or legally incapable of receiving proceeds. All other benefits are payable to the insured unless assigned to a healthcare provider. Insurer may have the option of making payments directly to the person or hospital rendering services. 10) Physical Exam & Autopsy - Insurers have the right to examine the insured, at its own expense, where not prohibited by law. 11) Legal Actions - Must wait 60 days after proof of loss is submitted before legal action can be brought against company, but not later than three years after proof of loss has been submitted. This item is covered in most company s proof of loss forms. 12) Change of Beneficiary - Consent of beneficiary is not required unless the beneficiary designation is irrevocable. Other Provisions: Waiting or Elimination Period A policy may contain a provision which states a period of time between issuance and acceptance before sickness benefits begin. This helps keep the premium reasonable by eliminating benefits for minor disabilities. Waiver of Premium This in an optional provision which states that if the insured becomes totally disabled, premiums are waived but the coverage remains in force. Double Indemnity This policy provision doubles the death benefit in the case of accidental death. approximately 200 practice questions dealing with Aviation, Boiler and Health insurance. QUICK NOTES - 96

97 Coverage Continuation Provisions - The question of insurer ability to terminate coverage is one of the major issues of concern to most insureds. There are five different types of provisions relating to coverage continuation: Cancellation Clause - Some forms reserve to the insurer the right to cancel the policy by giving a specified degree of notice, during the policy term. Florida law requires not less than 20 days notice. This type of cancellation privilege is not widely used today. Most individual health policies prohibit midterm cancellation. Optionally Renewable (Renewable at the Insurer's Option) - Under this provision the company may not cancel during the policy term, but reserves the right to nonrenew the policy upon its expiration. Conditionally Renewable - This type provision states the insurer can refuse to renew the policy only under certain conditions. The policy must state the conditions under which the policy will not be renewed. For example, a conditionally renewable contract may state that a company may refuse to renew the policy if renewals are declined on all similar policies in a given state. Guaranteed Renewable - This form of coverage requires the insurer to renew the policy to a stated age; typically, 65. While the company cannot cancel the policy, it reserves the right to increase the premium in the underwriting class in which the insured is placed. Non-cancellable - The health insurance policy that is non-cancellable affords the greatest degree of continuation protection to an insured with no change in benefits. The company cannot cancel the policy, agrees to renew the policy, at the option of the insured, to a stated age, and agrees that premium rates will not be increased. Exclusions - Policy exclusions limit the insurer s liability. Health insurance policies frequently cite a number of exclusions or conditions that are not covered. The common exclusions are injuries due to war or an act of war, self-inflicted injuries and those incurred while the insured is serving as a pilot or crewmember of an aircraft. Other exclusions are those resulting from riots or the illegal use of drugs. Losses due to injuries sustained while committing a felony, or attempting to do so, may also be excluded. Foreign travel may not be excluded in every instance, but extended stays overseas or foreign residence may result in a loss of benefits. Other exclusions may also include: approximately 200 practice questions dealing with Aviation, Boiler and Health insurance. QUICK NOTES - 97

98 1. Occupational injury or disease if workers compensation applies, or automobile accident injuries to the extent no-fault benefits are paid. 2. Childbirth, normal pregnancy or elective abortions. 3. Treatment in a VA or other government hospital. 4. Dental expenses (except from accident). 5. Mental illness (or reduced benefit for psychiatric care). 6. Cosmetic surgery (unless required by accident). 7. Illnesses that originated before inception of the policy (preexisting conditions). Types of Coverage - Health insurance refers to a broad field of insurance plans that provide protection against the financial consequences of illness, accidents, injury and disability. There are three distinct categories of health insurance: accidental death and dismemberment insurance, medical expense insurance and disability income insurance. Accidental Death and Dismemberment Insurance pays specified amounts for specific injuries or for death. Benefits are only payable if the injury or death is caused by accident. Injuries must result in specific losses such as loss of sight, arms, legs, or feet. This coverage can be written as a separate policy, as a rider on a life insurance policy, as part of disability income insurance, or as part of a health insurance plan. Medical Expense Insurance provides financial protection against the cost of medical care by reimbursing the insured, fully or in part, for these costs. It includes many kinds of plans that cover hospital care, surgical expenses, physician expenses, outpatient care, etc. Medicare supplement insurance and long term care insurance, two types of health insurance coverage designed for the elderly, are also types of medical expense insurance plans. For many years the leading type of medical expense insurance sold was basic hospitalization expense insurance that provides benefits up front without having to satisfy a deductible. Basic hospitalization expense policies limit the type and duration of services covered and the dollar amounts that will be paid to the insured. The leading type of medical expense insurance sold today is major medical expense insurance. It offers broad coverage under one policy, typically paying benefits for hospital room and board, hospital extras, nursing services inhospital or at home, blood, oxygen, surgery, physician fees, and ambulance services. It usually includes a deductible and a percentage participation, or coinsurance. In addition, it provides for high benefit limits and is generally available on an individual and on a group basis. Major medical policies provide total maximum lifetime benefits to individual insureds of up to $1,000,000 or more. approximately 200 practice questions dealing with Aviation, Boiler and Health insurance. QUICK NOTES - 98

99 Other types of medical expense insurance include: Hospital Indemnity Insurance - This type of coverage pays a flat amount per day of hospitalization, regardless of expenses or other insurance. Its principal purpose is to supplement other coverage which may have become inadequate because of rising health care costs. An insured, for example, may have purchased a hospitalization expense policy a few years ago, with a daily room and board limit of $100, and cannot now increase that policy. The insured, finding that the current average semi-private room rate is $180, desires more adequate coverage. A typical hospital indemnity policy might pay $50 per day of hospital confinement, subject to a maximum of $5,000. Surgical Expense Insurance - Surgical expense coverage covers fees of physicians for performing surgery, with a maximum amount payable for each procedure. The typical surgical schedule is constructed to provide a top benefit for the most serious types of operations and scaled down for the less complicated or relatively simple types of surgery. The policy might, for example, pay a flat $500 for an appendectomy, with high and low limits of $1,500 to $100 for other procedures. Insurers generally offer a variety of schedules at different premium rates. The indemnity amount for surgery that is not specified in the surgical fee schedule is consistent with the indemnity amount for similar surgery in the schedule. Physicians Coverage - This coverage reimburses the insured for non-surgical care provided by a physician. Benefits are payable for physician services in the hospital, in the patient's home, or in the physician's office. Typically, a limit applies per visit, subject to a maximum number of visits per illness. Example: $15 per visit, maximum 20 visits per illness. Medicare Supplement Insurance Medicare does not pay all of the health care expenses incurred by the elderly. There are limits on some covered services and the Medicare program is subject to deductibles and coinsurance provisions. Medicare supplement insurance fills in the gaps in protection left by Medicare. Medicare supplement policies pay some or all of Medicare s deductibles and co-payments. Some Medicare supplement policies pay for services not covered by Medicare. For consumer protection, the Florida Statutes (ES ) establish standards that must be met for any policy to be advertised or identified as a "Medicare supplement" policy. In addition to stating specific minimum limits that will fill Medicare gaps created by deductibles, coinsurance and exclusions under that program, requirements include, for example, that policies must be in understandable language, be returnable within 30 days of purchase for full premium refund, be accompanied by an outline of coverage and a Medicare supplement buyer's guide, and not limit coverage for more than six months because of preexisting health conditions. approximately 200 practice questions dealing with Aviation, Boiler and Health insurance. QUICK NOTES - 99

100 Health Maintenance Organizations (HMO) - An emerging and increasingly important noninsurance alternative to dealing with risk of health care costs is the Health Maintenance Organization (HMO). An HMO provides comprehensive health services to its members for a prepaid fixed fee, equivalent to an insurance premium. HMOs have differing kinds of sponsors, depending upon the specific goals and needs of the group. Typically, a primary goal is to decrease the extent of health losses through preventive activity, thereby reducing the cost to the individual subscriber. Characteristics of HMOs usually include direct delivery of comprehensive health services to members through employed physicians, with broad coverage, fewer exclusions, and small or nonexistent deductibles and coinsurance provisions. HMOs, while having numerous ardent supporters, are not without problems. Some have failed; some have fallen short of expected participation. The start-up costs for an HMO are large and some have not achieved sufficient size to achieve economies of scale. Some individuals feel that their freedom to select individual physicians is unduly restricted. It has been argued that the quality of medical care is not as high as that provided by a physician engaged in private practice, presenting an unacceptable tradeoff of superior care for cost-saving. Preferred Provider Organizations (PPO) - A Preferred Provider Organization (PPO) is a selected group of hospitals and medical practitioners in a given area who have joined together in an effort to reduce medical costs. The group has a contract with a traditional insurance company or Blue Cross/Blue Shield to provide their services at a prearranged cost. PPOs and HMOs are sometimes lumped together and called "managed health care systems." However, a PPO differs from an HMO in that the PPO has no separate physical facility in which to see patients. Patients visit their family physician and community hospital as they normally would, and if these service providers have contracts with the PPO, the services will be paid for by the PPO at the contracted rates. Because the PPO represents many patients, it can negotiate what is essentially a "volume discount" from the service providers. An important feature of most PPOs concerns emergency care. Most PPO plans provide that emergency treatment will be paid for even if the treated party does not go to a service provider on the approved list. Disability Income Insurance - The object of disability income insurance is to provide periodic income payments when the insured is unable to work because of sickness or injury. These policies generally provide a waiting period before income payments begin, and then pay a monthly benefit for a specified period of time, or for life. The waiting period may be as little as seven days; 30, 60 or 90 days are not unusual; it may be as long as six months or a year. Certain policies may have rates which vary with the particular occupation of the insured. Such a policy may contain a provision which provides for a reduction in benefits if the insured changes to a more hazardous occupation. A non-prorating policy specifically provides that benefits will not be reduced if the insured changes to a more hazardous occupation. approximately 200 practice questions dealing with Aviation, Boiler and Health insurance. QUICK NOTES - 100

101 As to the monthly benefit, insurers attempt to avoid over-insurance by restricting the total coverage of all policies. From a moral hazard standpoint, one who was earning $2,000 per month may have little incentive to return to work if disability income is providing an equivalent standard of living. An insurer might, for example, not wish to participate in any total insurance arrangement wherein the insured's benefit would be more than 66-2/3% of normal income. Florida law allows insurers, under certain conditions, to insert provisions in their policies which state that the total disability income for all policies will not exceed the insured's average monthly earnings for the two years preceding disability, except the minimum is the lesser of $500 or the benefits due. With over-insurance, each policy prorates for its share of such limitation. If a company is making extended payments to an insured for disability, Florida regulations require that claim payments must be not less often than monthly. While the basic function of disability income is to pay for total disability, some policies may also pay reduced benefits for partial disability. "Total disability" and "partial disability" may have varying definitions under different insurers policy forms. Total disability could mean a complete inability to do any work (highly restrictive), or inability to work in an occupation for which the insured is qualified by reason of education, training or experience (average), or unable to perform the duties of his or her own occupation (liberal). A work impairment which limits either the duties that can be performed or the amount of time that can be worked, falling short of the total disability definition, would be a basis for partial disability benefits. Policies vary, but payments for partial disability are usually about half of those for a total disability. Suppose an insured is injured and cannot perform any of the normal work for six weeks. For the next four weeks, the attending physician allows work for half days, performing only some normal functions. The total disability benefit would be based on the six-week period, with partial disability benefits payable for four weeks. In addition to paying benefits for disability, disability policies may contain a schedule for providing lump sum benefits if the insured should lose his or her sight or become dismembered. For instance, the insured might receive 100% of the lump sum for loss of both hands or both feet or sight of both eyes, 50% for loss of one foot and one hand, etc. If, after receiving loss of time indemnity for a disability, the insured then loses a limb or sight from the accident, the dismemberment benefit specified in the policy will be fully payable, if such dismemberment occurs within a specified time from the accident (usually 200 weeks). Some Disability policies may provide that the insured may elect to receive a lump-sum benefit on a loss-by-loss basis for certain injuries (usually fractures, dislocations, etc.) This is called an elective indemnity benefit and is elected in lieu of the weekly or monthly loss of time indemnity. approximately 200 practice questions dealing with Aviation, Boiler and Health insurance. QUICK NOTES - 101

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