Commercial Lines 101 CE Questions and Answers 2024
Insurer - Answer -The insurance company Named Insured/Insured - Answer -The policyholder Financial Definition of Insurance - Answer -A financial agreement involving the redistribution of financial losses Legal Definition of Insurance - Answer -A contractual agreement in which one party (the insurer) agrees to compensate or indemnify another party (the insured) for fortuitous losses Loss Pooling - Answer -the sharing of total losses sustained by a few members of the insured group Payment of Accidental or Fortuitous Losses - Answer -Allows the insurer to more accurately predict future losses Transfer of Risk - Answer -Involves the transfer of risk from the insured to the insurer which is normally a larger entity more financially able to absorb the loss Indemnification - Answer -The act of an insurer compensating the insured for a covered loss with the goal to put the insured back in the same financial position he or she was in prior to the loss Loss - Answer -The basis of a claim for damages under the terms of the policy Planned Losses - Answer -Include expenses such as depreciation on a piece of factory equipment or on a commercial vehicle Is insurance designed to cover planned losses or accidental losses? - Answer -Accidental losses Direct Loss - Answer -An insurable loss that is the immediate result of a covered cause of loss (fire to an office building) Indirect Loss - Answer -An insurable loss that is a consequential result of a direct loss (expenses entailed in renting other commercial property because of a fire to your office building) Peril - Answer -The cause of the loss Named Perils Policy - Answer -The policy specifically lists the covered perils All Risks Policy - Answer -Provides broader protection and covers any accidental loss, subject to a host of policy exclusions 1 / 3
Exclusion - Answer -A policy provision that identifies losses that are not covered Hazard - Answer -A condition or conditions that increases the probability of a loss Physical Hazard - Answer -A physical condition or situation that increases the possibility of loss (outdated or frayed wiring in a factory) Moral Hazard - Answer -Intentional acts committed by the insured that either create or exaggerate a loss and is measured by the character of the insured and the circumstances surrounding the subject of the insurance Morale Hazard - Answer -Implies an indifference to loss simply because the existence of insurance (a way to mitigate this hazard is to insist on high deductibles) Proximate Cause - Answer -A substantial factor in setting events in motion that cause a loss Risk - Answer -The uncertainty arising from the possible occurrence of given events (also referred as the insured or the property to which an insurance policy applies) Pure Risk - Answer -The risk involved in situations that present the opportunity for loss but no opportunity for gain (generally insurable) Speculative Risk - Answer -The uncertainty about an event under consideration that could produce either a profit, no change in a financial position, or a loss (generally create risks that did not previously exist so is generally uninsurable) Risk Classification - Answer -Insurers place their applicants for insurance in well-defined homogeneous classes based on the probability of loss Tort - Answer -A civil wrong, other than breach of contract or a criminal act, giving rise to legal liability (can result from negligence, intentional acts, or strict liability) Liability - Answer -The obligation to pay a monetary award for injury or damage caused by ones negligence Negligence - Answer -The failure to use a reasonable degree of care under a given set of circumstances The Four Elements of Negligence - Answer -A duty owed to a plaintiff, an unintentional breach of that duty by the defendant, an injury or damage suffered by the plaintiff, and a sufficient causal connection between the defendants unintentional negligence and the plaintiffs injury of damage Intentional Acts - Answer -An act committed with the purpose of injuring someone or damaging another's property which results in an intentional injury (assault, battery) Strict Liability - Answer -A doctrine that concerns liability for damages regardless of fault (often deals with inherently dangerous property or situations) 2 / 3
Reinsurance - Answer -A transaction in which on party, the reinsurer, in consideration of a premium paid to it, agrees to indemnify another party (the insurer) for part or all of the liability assumed by the insured under a policy it has issued (insurances for insurers) Contract - Answer -A binding agreement between two or more persons that is enforceable by law with four requirements: offer and acceptance, consideration, legal capacity, and legal purpose Offer - Answer -An expression of the willingness to enter into an agreement with another party made in a clear and well-communicated manner Acceptance - Answer -The assent to the offer; it must be unconditional and communicated clearly as well Consideration - Answer -The value that each party gives to the other when making the contract; the insurer promises to pay for covered loss, to defend the insured in litigation, or to perform other services while the insured agrees to pay the premium and abide by the requirements of the insurance policy Legal Capacity - Answer -The right to make binding agreements for oneself Legal Purpose - Answer -Example: a written agreement regarding child pornography or drug dealing is not considered a contract by a court of law Valid Contract - Answer -A contract that complies with all the essentials of a contact and is binding and enforceable on all parties to it Voidable Contract - Answer -A contract that appears to be valid on the surface but may be voided by one or both of the parties Void Contract - Answer -Has no legal force because it does not meet the essential elements of a contract Principle of Indemnity - Answer -Stipulates that an insured will be reimburses for his or her loss subject to the policy's limits and terms Commercial Lines Policy has two key exceptions to the Principle of Indemnity - Answer -The policy may provide replacement cost coverage or the policy may provide coverage on a valued basis Valued Coverage - Answer -Property coverage that pays a stipulated dollar amount (rather than an actual cash value or replacement cost of the property) in the event of a total loss Insurable Interest - Answer -The insured's financial interest in the value of the subject of insurance; an insured must clearly prove a personal stake in the item being insured or else be unable to collect compensation due when an insured peril causes a loss Subrogation - Answer -The assignment to an insurer, after the insurer's payment of a loss to the named insured, of the rights of the insured to recover the amount of the loss from one legally liable for it Unilateral Contract - Answer -A contract in which only one party (the insurer) makes an enforceable promise (to pay a covered loss)
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