Fin 3610 You Are To Complete

Fin 3610 You Are To Complete

1. The basic parts of an insurance contract are often summarized with the acronym ______________________. Please briefly discuss four of the five parts of a standard insurance policy.

2. Discuss and provide examples of exclusions that are necessary in any commercial insurance policy. Explain the problem that may ensue if either of these exclusions are not part of a policy.

3. If an applicant for life or health insurance is concerned about becoming disabled and being unable to pay the insurance premiums, a ________________________________ rider should be purchased as part of the policy.

4. Provide a hypothetical example that explains the difference between an aggregate deductible and a straight deductible.

5. Coinsurance clauses are found in many property policies as well as in many health insurance policies, although the purpose of each is vastly different. Explain the purpose of the coinsurance in both types of insurance.

Coinsurance in property insurance: Coinsurance in health insurance:

6. Assume Alvin purchases a home for $200,000 and also purchases a homeowners’ policy. He is not concerned about a total loss as he lives very near a fire station, so he purchases $160,000 of coverage on his home, knowing that this homeowners policy has an 80% coinsurance clause. Should he have a $20,000 loss on his home, how much will his insurer pay for the loss? Please show your work.

7. Several Other Insurance clauses may be included in property insurance policies. Sam’s policy has a pro rata provision. Without disclosing to the insurers that he is purchasing multiple policies on his $20,000 building, Sam purchases a property policy with Company A for $20,000 and then purchases a policy from Company B for $30,000. Should Sam have a $10,000 loss to his building, how much will be paid by each insurer? Please show your work.

a. Insurer A _____________

b. Insurer B _____________

8. An individual who is injured as result of a tort may bring a legal action against the person who caused the injury. In a court of law, the injured party is known as the _______________________________.

9. Kate opened a delivery business and hired a delivery driver. When her driver ran a stop sign and injured another motorist, the injured motorist sued Kate as the employer of the negligent driver. Transferring the liability of one person to another person is called ______________________________________________________.

10. Which of the following statements is (are) true with respect to the degree of care owed by property owners to those who visit their property? Please explain your answers.

T/F Property owners owe the same degree of care to all visitors to their property.

T/F A higher degree of care is owed to an invitee than is owed to a trespasser.

11. Provide a hypothetical example of the following defenses to a liability claim:

a. Assumption of risk

b. Last clear chance rule

c. Contributory negligence

12. Bob was severely injured as a result of Sam’s negligence. As payment for things that cannot be itemized, such as pain, suffering, and disfigurement, Bob will receive _____________________________ damages.

13. All of the following are elements that must be established for an act to be deemed negligent EXCEPT

a. Existence of a legal duty to use reasonable care

b. Damage or injury to the claimant

c. Proximate cause between the failure to use reasonable care and the injury

d. No contribution to the injury by the injured party

14. a. What is meant by Tort Reform? Provide and briefly explain two issues that are typically addressed in tort reform.

b. One tort reform proposal involves modification of a legal doctrine that prevents the defendant from introducing evidence that shows that the injured party has received other compensation for the injury. This legal doctrine is called the ______________________________________________________________

15. Which of the following statements is (are) true with respect to defenses against negligence claims?

• · Under contributory negligence, an injured person who contributes to his injury is barred from recovery.
• · Under comparative negligence, an injured person who contributes to her injury may recover damages.

a. II only

b. both I and II

c. neither I nor II

d. I only

16. Using the internet, cite a liability case that was based on the doctrine of Res Ipsa Loquitur, and provide a brief summary.

17. Briefly discuss the following laws and explain the key changes that resulted from each:

a. Sarbanes-Oxley Act

b. Dodd-Frank Wall Street Reform and Consumer Protection Act

c. McCarren Ferguson Act

d. Modernization Act

18. The most common Homeowners’ Insurance Policy is the HO-3. This policy consists of two basic parts, Section I and Section II. Please define each of the six coverages and provide an example of a claim that would be covered in each. Section I Coverage A Coverage B Coverage C Coverage D Section II Coverage E Coverage F

Paper For Above instruction

Introduction

Insurance contracts form the backbone of risk management strategies for both individuals and businesses. These contracts are structured with specific parts that delineate coverage, exclusions, duties, and legal obligations. Understanding the fundamental components of an insurance contract, the necessity of specific exclusions, and various policy features such as riders, deductibles, coinsurance, and liability clauses is essential for effective insurance planning and risk mitigation. This paper aims to explore these core aspects, provide examples, and discuss key legal principles associated with insurance policies.

1. The Basic Parts of an Insurance Contract

The acronym often used to summarize the essential elements of an insurance contract is OUVEX, standing for Offer, Underwriting, Validity, Exposure, and Exchange. Among these, four key parts are:

• Coverage (Insuring agreement): This part specifies what risks are covered and under what conditions. For example, a homeowner’s policy covering fire and theft.
• Exclusions: Specific conditions or perils that are not covered, such as flood damage in a standard homeowner’s policy unless explicitly included.
• Conditions: The obligations of both parties, like paying premiums on time or maintaining the property.
• Declarations: Personal information about the insured, policy coverage limits, and premiums.

The remaining part in the acronym is Validity or Legal Provisions, which ensures the contract is legally enforceable.

2. Necessary Exclusions in Commercial Insurance Policies

Exclusions are vital to prevent coverage for risks that are either too uncertain or that the insurer does not wish to assume. Common examples include:

• Intentional Acts: Excluding damages resulting from deliberate actions to prevent moral hazard.
• War or Terrorism: Typically excluded because of the unpredictable and catastrophic potential of such events.

If these exclusions are absent, the insurer might face enormous claims, potentially jeopardizing its solvency. For example, without excluding war risks, an insurer could be liable for damages from an act of war, which could cause catastrophic financial loss.

3. Rider for Disability Concerns

A disability income rider should be purchased as part of life or health insurance if the applicant is concerned about becoming disabled and unable to pay premiums. This rider provides a source of income that covers premium payments during periods of disability, ensuring continued coverage without financial strain on the insured.

4. Aggregate Deductible vs. Straight Deductible

Consider a business that purchases a commercial property policy with an aggregate deductible of $50,000. If during the policy period, the business sustains multiple small claims totaling $60,000, it pays the first $50,000 and the insurer covers the remaining $10,000. Conversely, a straight deductible applies per claim. For example, if the same business experiences a $20,000 loss, and the deductible is $1,000, the business pays the first $1,000, and the insurer covers the remaining $19,000. The main difference is the aggregate deductible applies to multiple claims over the policy period, whereas the straight deductible applies to individual claims.

5. Purpose of Coinsurance in Property and Health Insurance

In property insurance, coinsurance encourages policyholders to insure their property to a specified percentage of its value, promoting risk retention and reducing moral hazard. For example, if a property is valued at $200,000 with 80% coinsurance, the policyholder must insure at least $160,000 to receive full coverage in case of a loss.

In health insurance, coinsurance typically refers to the percentage of covered medical costs the insured pays after meeting deductible and copayments. For example, a 20% coinsurance means the insured pays 20% of medical expenses, and the insurer covers the remaining 80%. This encourages responsible use of healthcare services and controls costs.

6. Alvin’s Homeowners’ Insurance and the 80% Coinsurance Clause

Alvin’s home value: $200,000

Coverage purchased: $160,000 (80%)

Loss: $20,000

Calculation:

The insurance policy has an 80% coinsurance clause, requiring the insured to cover 80% of the property's value to receive full compensation. Alvin's insured amount is 80% of $200,000 = $160,000, matching his policy.

Since the loss is $20,000, which is less than his coverage limit, the insurer pays the full amount of the loss because he has met the coinsurance requirement. Therefore, the insurer will pay $20,000.

7. Multiple Insurance and Pro Rata Clauses

Sam’s total coverage: from Company A ($20,000) and Company B ($30,000), total $50,000.

Loss: $10,000

Under pro-rata sharing, each insurer pays proportionally to their coverage.

Insurer A pays: ($20,000 / $50,000) * $10,000 = $4,000

Insurer B pays: ($30,000 / $50,000) * $10,000 = $6,000

8. Legal Term for Injured Person

The injured person in a tort case is known as the plaintiff.

9. Employer Liability and Vicarious Liability

The legal concept of transferring liability from the negligent driver to the employer is called vicarious liability. It holds employers responsible for acts committed by employees within the scope of employment.

10. Degree of Care Owed by Property Owners

False: Property owners do not owe the same degree of care to all visitors. They owe different levels based on the visitor’s status.

True: A higher degree of care is owed to invitees (e.g., customers) than to trespassers, to prevent known or reasonably discoverable hazards.

11. Hypothetical Defenses to Liability

a. Assumption of risk: A skier signs a waiver before using a ski lift, acknowledging the risks involved. If injured, the defense may argue the skier voluntarily assumed known risks.

b. Last clear chance rule: A driver sees a pedestrian about to step onto the crosswalk but does not stop. Later, the pedestrian is injured when a car hits him. The driver’s failure to act may be argued as last clear chance to avoid injury.

c. Contributory negligence: A cyclist ignores a stop sign and is hit by a car. The cyclist’s negligence contributed to the accident, potentially barring recovery.

12. Damages for Non-Itemized Losses

Bob will receive general damages for pain, suffering, and disfigurement.

13. Elements of Negligence

The element that is not required is: d. No contribution to the injury by the injured party. Contributory negligence, while relevant, is not an element required to establish negligence but can be used as a defense.

14. Tort Reform and Related Issues

a. Tort reform refers to legislative changes aimed at limiting damages and liability to reduce frivolous lawsuits and control litigation costs. Common issues addressed include caps on damages, especially for non-economic damages like pain and suffering, and modifications of legal doctrines that restrict evidence.

b. The legal doctrine modified is the Collins v. Wilcock rule, regarding evidence of other compensation received by the injured party, often called collateral source rule.

15. Negligence Defenses

• Under contributory negligence, an injured person who contributes to his injury is barred from recovery.
• Under comparative negligence, an injured person who contributes may still recover damages proportionate to their degree of fault.

Answer: b. both I and II

16. Res Ipsa Loquitur Case

An example of a liability case based on the doctrine of Res Ipsa Loquitur is Yates v. United States. In this case, a piece of surgical equipment was left inside a patient’s body after surgery. The court held that the injury could be attributed to negligence because such incidents typically do not occur without negligence, and the circumstances shift the burden of proof to the defendant to establish that they were not negligent.

17. Laws and Key Changes

a. Sarbanes-Oxley Act

Enacted in 2002, it significantly improved corporate governance and accountability, requiring stricter financial reporting, auditing standards, and internal controls to combat corporate fraud.

b. Dodd-Frank Wall Street Reform and Consumer Protection Act

Implemented in 2010 to prevent a recurrence of the 2008 financial crisis, it increased regulation of financial institutions, established the Consumer Financial Protection Bureau, and introduced measures for systemic risk reduction.

c. McCarren Ferguson Act

Passed in 1945, this act limited the regulatory power of states over insurance companies, emphasizing federal regulation and promoting a uniform national insurance policy framework.

d. Modernization Act

Refers to various legislative updates aimed at updating insurance laws to reflect modern practices, such as technological advances and changing markets.

18. Homeowners’ Insurance HO-3 Coverages

Section I - Property Coverages

• Coverage A (Dwelling): Covers damage to the house itself. Example: Fire damages the structure.
• Coverage B (Other Structures): Covers detached structures like garages or fences. Example: A storm damages a shed.
• Coverage C (Personal Property): Covers personal belongings inside the home. Example: Theft of furniture.
• Coverage D (Loss of Use): Provides compensation if the home is uninhabitable due to a covered peril. Example: Evacuation due to fire.

Section II - Liability Coverages

• Coverage E (Personal Liability): Protects against legal liability if someone is injured on the property. Example: A visitor slips and injures themselves.
• Coverage F (Medical Payments to Others): Pays for medical expenses if someone is hurt on the property, regardless of fault. Example: A neighbor’s child is injured while playing.

References

• Curti, R. P. (2019). Principles of Insurance. Boston: Cengage Learning.
• Goel, S. (2018). The Law of Property & Liability Insurance. New York: Aspen Publishers.
• Munoz, A., & Goodwin, R. (2020). Insurance Law and Practice. Oxford University Press.
• Rejda, G. G., & McNamara, M. J. (2017). Principles of Risk Management and Insurance. Pearson.
• Vaughan, E. J., & Vaughan, T. (2018). Fundamentals of Risk and Insurance. John Wiley & Sons.
• National Association of Insurance Commissioners (NAIC). (2022). Understanding Insurance Policies. Retrieved from https://www.naic.org
• Insurance Information Institute (III). (2021). How Does Insurance Work? Retrieved from https://www.iii.org
• U.S. Department of Justice. (2022). Tort Law and Liability. Retrieved from https://www.justice.gov
• Financial Stability Oversight Council. (2020). The Financial Crisis Inquiry Report. Washington, D.C.
• American Bar Association. (2019). Liability and Tort Law. Chicago: ABA Publishing.