GONE WITH THE WIND

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					        GONE WITH THE WIND
   This course is approved by the DBPR Council of Community Association
      Managers, for 4 hours of continuing education credit in the area of:
                           Insurance & Financial




             Gold Coast Professional Schools, Inc. Provider #00842
                 Correspondence Course Approval # 9625169
                    Classroom Course Approval # 9625168




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                                        Introduction


This course will continue education in the Insurance Industry. Mother Nature has dealt us a
wicked few rounds and the experts are predicting more of the same. We CAM’s need to
prepare our associations for the financial consequences of the past two years of storm
damage and further prepare and manage the associations exposure to additional potential
losses.

We will review some of the recent insurance law changes, and we will also review some
proposed insurance law changes.

It is impossible to become an expert in any industry in a short period of time; we hope that
this course will provide you with review and refresher of material that you already know and
possible some new information.

We hope you enjoy the course!




Gregory P. Todd
CAM, Instructor




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                                                   TABLE OF CONTENTS


Risk...................................................................................................................................260

Obtaining Insurance........................................................................................................268

The Windy State ..............................................................................................................269

Insurance Law Update ....................................................................................................272

Possible/Proposed Insurance Law Changes ................................................................274

Terminology Review .......................................................................................................278

References.......................................................................................................................306

Final Exam .......................................................................................................................307

Answer Sheet ........................................................................... (the last page of the book)




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                                            RISK

Risks exist every second of every minute of every day. Risk is impending chances of things
that may happen, causing somebody or something injury, damage, or loss. Risk is only the
chance that something may occur; therefore we are only dealing with statistical probabilities.
Risk and the statistical probabilities that are determined are the primary concerns of
insurance companies’ underwriters and statisticians.

A prudent manager or board would first determine or hire an insurance professional
consultant to determine what perils and to what degree of risk the association is subject.
Such risks include perils of:

      Wind
      Flood
      Fire
      General liability
      Errors & omissions
      Directors & officers
      Theft
      Wind driven rail
      Sinkholes
      Tornados
      Wind storms
      Hurricanes
      Casualty
      And many other perils

The risk of perils and the damages they can cause are only manageable to one degree or
another. The steps in managing risk are:

   1. identify exposure to risks
   2. prioritize risk exposures
   3. quantify risk exposures
   4. identify exposure minimization requirements
   5. weigh cost of exposure verse cost to minimize exposure
   6. decide what monies to expend and prioritize risks
   7. minimize exposures to identified risk and minimize the extent of potential losses
   8. decide which risk in whole or part to transfer and which to retain
   9. shop for insurance for identified risk being transferred
   10. budget and allocate funds for payment of risks being transferred
   11. budget and allocate funds for payment of self insured risk or provide plans for special
       assessments, and or make financing arrangements in advance

Risk management is a discipline which requires specialization and experience. An
association may be best served hiring experts to assist in risk analysis, risk management
and loss prevention.


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Regardless of the types of risk, most associations transfer risk (obtain insurance) to
commercial risk takers (insurance companies) through complex insurance contracts

There are two main types of policies available to an association:

   1. All risk
      An All-Risk policy covers the insured property against everything except the
      specifically excluded perils. Standard property owners policies provide coverage
      against named perils only. With an All-Risk policy, the insurance company must
      prove that a claim is not covered, whereas with a basic named peril policy, the
      insured must prove it is. All-Risk policies carry a price tag only slightly higher than
      that of named perils coverage.
   2. Named Peril
      A Named Peril Policy only covers the peril that is specified in the policy. All other
      perils are excluded from coverage.

Instead of discussing risk from the peril perspective let’s look at risk from the association’s
perspective; specifically gaps or exposures based on the types of policies in force and the
terms and conditions. These types of gaps and exposures include but may not be limited
to:

       Deductibles, multiple deductibles in any given term or season
       Limits/aggregate limits
       Time limits (make claims/government assistance programs)
       Type of insurance form (loss form)
       Law codes & ordinances
       Replacement cost coverage
       Excluded perils
       Excluded subsequent damage not directly caused by a peril but as a consequence
       Other excluded losses

Deductibles

Deductibles are that portion of a loss that is paid by the insured toward the total cost of a
loss.

Hurricane deductibles are percentage or dollar deductibles that are higher than other
causes of loss. They are calculated as a percentage of the dollar amount of coverage on the
dwelling or as a flat dollar amount. Generally 2-5% of the loss prior to the 2004 and 2005
hurricane season, it is purported that a 5% deductible is what will mainly be offered in the
future.

By Florida statute, the application of hurricane deductibles is triggered by windstorm
losses resulting from “a storm system that has been declared to be a hurricane by the
National Hurricane Center of the National Weather Service.” They take effect “at the time a
hurricane watch or warning is issued for any part of Florida” and remain in effect “for the
time period during which the hurricane conditions exist anywhere in Florida,” ending 72
hours following the termination of the last hurricane watch or warning. Wind damage
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from storm systems other than declared hurricanes is not subject to the hurricane deductible
but to the general deductible. Four major hurricanes devastated Florida in 2004: Charley,
Frances, Ivan and Jeanne. Tens of thousands of Florida property owners paid more than
one deductible for the 2004 hurricanes. However in December, 2004 lawmakers passed a
bill that eliminated multiple hurricane deductibles as of May 2005. In addition a
reimbursement program was implemented for property owners who paid more than one
deductible during the 2004 hurricane season.

Limits/Aggregate Policy Limits & Time Limits

Aggregate policy limits generally refers to Liability Insurance and indicates the amount of
coverage that the insured has under the contract for a specific period of time, usually the
contract period, no matter how many separate accidents may occur. Sometimes an insured
may elect to purchase a liability umbrella. Umbrella coverage is insurance coverage that
extends the terms of a regular insurance policy once coverage limits for the regular policy
have been reached. Specifically, umbrella coverage is for people who want protection
against a large jury award that is not covered in their standard policy or if the regular policy
has reached or exceeded aggregate limits.

Time limits FEMA, And State government agencies such as: Forestry, Community Affairs,
and others have time limits by which a citizen affected by a peril may apply for assistance.

Type of Insurance Form (loss form)

An insurance form specifies the perils that your policy covers. The following overview
explains the basic insurance packages available to Florida property owners, condominium
unit owners, mobile property owners and renters. The basic property owners’ policy is a
package policy that may be modified. But dwellings, adjacent structures, contents, liability
and medical payments usually cannot be eliminated from the basic package.

The three packages offered most frequently to owners of single-unit properties include:

   1. Broad Form HO-2
   2. Special Form HO-3
   3. Modified Coverage Form HO-8.

These policies insure your property and belongings against a number of perils.
These perils include:

1. Fire or lightning
2. Windstorm or hail
3. Explosion
4. Riot or civil commotion
5. Aircraft
6. Vehicles
7. Smoke
8. Vandalism or malicious mischief
9. Theft
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10. Falling objects
11. Weight of ice, snow or sleet
12. Accidental discharge or overflow of water or steam
13. Sudden and accidental tearing apart, cracking, burning or bulging
14. Freezing
15. Sudden and accidental damage from artificially generated electrical current
16. Volcanic eruption

Broad Form (HO-2)

Covers all 16 perils listed above

Special Form (HO-3)

The most popular property owner’s form covers the property for everything not specifically
excluded. It also covers personal property for all 18 perils listed:

   1. Fire or lightning
   2. Windstorm or hail
   3. Explosion
   4. Riot or civil commotion
   5. Aircraft
   6. Vehicles
   7. Smoke
   8. Vandalism or malicious mischief
   9. Theft
   10. Volcanic eruption
   11. Falling objects
   12. Weight of ice, snow or sleet
   13. Accidental discharge or overflow of water or steam
   14. Tearing, cracking, burning or bulging
   15. Freezing
   16. Sudden and accidental damage from artificially generated electrical current
   17. Open peril on buildings
   18. Sinkholes

The more perils your policy includes, the more expensive the policy. Property owner’s
policies vary in coverage and such variations include: price, terms, conditions and customer
service of the insurer. It is important to review your risks, the transference of risks and the
associated cost before making a decision.




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Modified Coverage Form (HO-8)

The modified insurance form insures a property against the first nine perils listed and
volcanic eruption.

Renters or Tenants Insurance (HO-4)

Insures household contents against the perils included in the Broad Form (HO-2). It also
includes personal liability coverage

Property Owners Insurance

One may obtain one of several basic packages of property owners insurance in Florida to
protect your property and belongings. Each package protects against a specified number of
perils, or events that cause damage to property, such as fire, windstorm or theft.

Covered perils apply to four categories:

   1.   Structure (the dwelling itself)
   2.   Other structures (i.e., sheds and fences)
   3.   Personal property (the contents of the structures)
   4.   Loss of use (also called Additional Living Expense or ALE)

The first three covered perils are defined as "property perils."

Property

Property coverage helps pay for damage caused by perils that are covered by your
insurance policy. Covered perils may include damage to your property, the contents of your
property and other personal belongings owned by you or family members who live with you.
In some cases, it helps pay for damage to other structures, such as tool sheds, detached
garages, small boats, guest houses and their contents. Your policy may provide for limited
coverage of personal items, such as antiques, jewelry, furs, collectibles, property of others,
and electronics. If you require additional coverage’s for such items, an endorsement or
addition to your insurance policy to amend the original terms may be required. You can
insure your property and belongings for replacement cost (note limitations, if any) or actual
cash value or by agreed amount endorsement.

Additional Living Expense (ALE)

Property owner’s packages provide additional living expense coverage that will pay some
extra expenses if damage to one’s owner occupied property prevents them from living there
while it is being repaired. Most policies also will provide this coverage when a civil authority
(law enforcement agency, emergency management service, etc.) prohibits the use of a
residence.



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The items typically covered above and beyond normal expenses include:

       extra costs for food
       housing
       telephone
       transportation (to and from work/school)
       relocation and storage
       utility installation
       furniture rental for a temporary residence

Insurance policies must be reviewed to determine what is specifically covered.
Your policy may designate a limit of coverage for additional living expenses, but your policy
does not obligate your company to pay this amount up front or in full if you suffer a total or
partial loss. For this reason, you must document additional living expenses and submit
these to the insurance company for reimbursement. Additional living expense only includes
the primary insured structure in the event of a loss. Policies generally offer ALE coverage
without any deductible.

In addition most homeowners policies will also included general or personal liability and
medical payment coverage.

Personal Liability

This coverage protects you against a claim or lawsuit resulting from bodily injury or property
damage to others. For example, if a neighbor slips and falls in your house and sues you,
and a jury finds you legally liable; this coverage would pay that claim plus legal fees up to
the policy limits. This coverage applies to you and all family members who live with you. It
does not cover intentional damage or harm caused by you or family members who live with
you. Check your policy for any exclusion and discuss them with your agent.

Medical Payments

Regardless of fault, this coverage pays for medical expenses, up to the medical payment
limits, of persons accidentally injured at your property. It does not apply to your injuries or
those of anyone living with you or to activities involving an at property business.

NOTE:
Florida law also mandates availability of coverage for sinkhole damage.

Other concerns that should be addressed include the following:

Codes/Ordinances & Law

Coverage designed to provide protection against financial loss for:

       Loss of value of an undamaged portion of the existing building which must be
       demolished and/or removed to conform with municipal ordinance, code, etc.

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        Cost of demolition of the undamaged portions of the building necessitated by the
        enforcement of building, zoning or land use ordinance or law.
        Increased expenses incurred to replace the building with one conforming to building
        laws or ordinances, or to repair the damaged building so that it meets the
        specifications of current building laws or ordinances.

Replacement Cost Coverage

The cost to repair or replace property at construction costs prevailing at time of loss; the
cost to repair or rebuild property without considering depreciation.

Excluded Perils

        Flood
        Mold
        Terrorism
        Trees
        Sink holes (but mandated to be offered by law in Florida), etc.

Excluded Losses

        Any loss that an insured caused intentionally
        Losses relating to a business pursuit of an insured
        Losses involving motor vehicles, aircraft, and water craft
        War
        Certain contractual obligations assumed by an insured
        Injury to other insured’s or property of other insured’s

Example:
No Coverage under Design Defect Exclusion in Builder’s Risk Policy for Repairing Structural
Defects in Condominium Building; Actual Covered Loss is Prerequisite to Application of Sue
and Labor Clause
April 1, 2003

In a case in which WRF represented Zurich American Insurance Company, the Florida
Supreme Court, answering two certified questions from the Eleventh Circuit on issues of
“first impression”, (The initial presentation to a court of a particular question of law. A case is labeled of
the first impression when it sets forth an original issue of law for decision by the court. Such a case cannot be
decided by any existing precedent, law in a prior case decided on a comparable question of law, or similar
facts.)

 unanimously held that: “a design defect exclusion in a builder’s risk policy barred coverage
for the costs of repairing structural defects in a condominium building, that the "ensuing
loss" exception to the exclusion did not restore coverage and that the policy’s ‘sue and labor
clause’ did not apply because no actual covered loss existed.” Swire Pacific Holdings,
Inc. v. Zurich Insurance Co., No. SC02-613 (Fla. April 10, 2003).


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The policyholder, the developer of a condominium project, sought coverage under its
builder’s risk policy for costs incurred to correct design defects in the project arising out
of the structural engineer’s failure to comply with governmental building codes and
ordinances.

To bring the project into compliance with those codes, the policyholder was required to
demolish and rebuild certain portions of the buildings. The insurer denied coverage,
contending that an exclusion for design defects barred coverage. The policyholder then filed
suit and both parties moved for summary judgment.

The district court granted summary judgment to the insurer, determining that the design
defect exclusion barred coverage. The court further ruled that the ensuing loss exception,
which restored coverage for "physical loss or damage resulting from such fault, defect, error
or omission in design, plan or specification," did not apply. The court also held that the ‘sue
and labor provision’ did not provide coverage for the loss.

The policyholder appealed to the United States Court of Appeals for the Eleventh Circuit.
The Eleventh Circuit determined that there were issues of first impression and certified
the following questions to the Florida high court:

The Florida high court answered, determining that the design defect exclusion
unambiguously barred coverage. In so holding, the court rejected the policyholder’s
argument that the exclusion was ambiguous because the policy did not define the terms
"loss or damage" and "physical loss or damage." The court noted that the policyholder
provided neither case law nor conflicting definitions to support the conclusion contention.
The court found that the plain language of the exclusion "clearly" excluded from
coverage "loss caused directly by a design defect." Accordingly, the court determined
that the actions undertaken by the policyholder to remedy defective design of the building
clearly fell within the exclusion.

The court next ruled that the ensuing loss exception did not restore coverage under the
exclusion. The ensuing loss exception restored coverage for "physical loss or damage
resulting from such fault, defect, error or omission in design, plan or specification." The court
initially observed that "‘physical loss or damage’ as used in the ensuing loss provision of the
clause is damage that occurs subsequent to, and as a result of, a design defect. Hence
no loss separate from, or as a result of, the design defect occurred." The court therefore
determined: "that under the clear contractual provisions along with the authority of
numerous courts," the policyholder was not entitled to coverage for the costs of repairing the
defect. In so ruling, the court noted that to hold otherwise would be to allow the ensuing loss
provision to completely eviscerate and consume the design defect exclusion." The court
further opined that the policyholder’s reading would transform the policy into "a warranty for
faulty workmanship" and "a guarantee against design and construction defects."

The court then rejected the policyholder’s contention that the “sue and labor” clause
afforded coverage. The court held that expenses are recoverable under the “sue and labor”
clause only when an actual covered loss has occurred or was in the process of occurring.
The court reasoned that "under the plain language of the provision, sue and labor expenses
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are stated to be recoverable only in the case or loss or damages, not simply when one
asserts that the expenses are to prevent a loss." In so ruling, the court found the cases
relied upon by the policyholder factually distinguishable because a covered loss had already
occurred or was in the process of occurring in those cases and thus the courts were
focusing on "mitigation, not prevention." Here, the court noted that the policyholder was
acting to prevent a potential collapse. Because no actual covered loss had taken place, the
court concluded that the “sue and labor” clause was inapplicable.

Exclusions in insurance policies can make or break an organization or individual. Ignorance
or sloth of the insured is the allies of the insurance companies. Exclusionary terms and
conditions and the language by which such exclusions are stated only increase the
advantage of insurance companies. In plain English read and understand your policies or
don’t buy them until you do.



                                 OBTAINING INSURANCE

After determining which risk an association is going to transfer to an insurance company it
is time to obtain price quotes. Before attempting to get price quotes the association would
be wise to prepare or have prepared by an insurance counselor a comprehensive set of bid
specifications. Ideally an association will hire an insurance consultant that is not only
licensed and insured; additionally the consultant should have specific association insurance
experience. Other qualifications of a consultant could be that the consultant has earned his
or her designation of Certified Insurance Counselor (CIC), which means that the
counselor is a professional in property and liability insurance that has passed a series of
examinations by the Society of Certified Insurance Counselors, and or that the counselor is
a Chartered Property and Casualty Underwriter (CPCU), that is a professional who has
attained a high degree of technical competency in property and liability insurance and has
passed ten professional examinations administered by the American Institute for Property
and Liability Underwriters.

Once the bid specifications have been completed the counselor and the association should
determine which insurance companies will be invite to bid. The decision of which insurance
companies will be invited to bid and the availability of competing companies have been very
limited over the past 20-25 years, and some associations can only obtain insurance for
certain policies from a state sponsored “non-profit” or other insurance carrier. In the event
the association can obtain completive bids it should formulate a set of bidder qualifications.
The qualifications of bidders could include a minimum rating by claims paying ability and
overall financial strength of the insurance company; ratings can be obtained from rating
agencies such as: Standard & Poor’s, Moody’s, AM Best, Duff & Phelps; there are other
additional agencies that also report on insurance companies. Then an invitation to bid
would be issued to the qualified bidders. The invitation to bid could remind the qualified
bidders that the association will only consider bids based on the bid specifications only.
Bids could be sealed bids that are returned to the association and opened at a board
meeting and the best company could be awarded the contract.

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An alternative to the foregoing process is to provide the bid specifications to insurance
brokers, but only after the association or insurance counselor has determined that at least
two qualified insurance companies shall be available to bid. Ideally, an association will
chose at least two insurance brokers and limit them to obtaining quotes from specified
insurance companies. The reason that the broker must be limited is that a broker could
essentially lock out other brokers from getting competitive quotes because an insurance
carrier will only quote to one broker on any specified property at any one time. By using
multiple brokers and limiting the insurance carriers, they can obtain quotes to provide that
association more competitive pricing.


                                    THE WINDY STATE

This course is for four hours of credit for insurance & financial requirements. The course
would be remiss if it did not review the cost and the impact that the past two hurricane
season has dealt us. Community associations are currently burdened by hurricane related
expenses over the past two years and another active season is upon us. Some
association’s have had deductible expenses in the tens of thousands of dollars, insurance
premiums increases ranging 20-40 percent, and wind storm deductibles for the forthcoming
2006 season set as high as 5%. Other loss and expenses not generally discussed are loss
of marketability of our properties as result of the negative stigmatism attached to living in
such a destructive area of the country. Many people are choosing to live elsewhere, any
may others are moving to other areas of the country. Additional losses not generally
quantified are loss of productivity, loss of momentum, loss of available monies from our
association members that have exhausted their savings, and or their properties equity. And
the often overlooked expenses of materials and time spent to prepare for storm that does
not actually land on our state. These types of economic losses are not easily calculable.

The 2004 Hurricane Season Reviewed:

   •  Hurricane Alex
   •  Tropical Storm Bonnie made landfall in the vicinity of St. Vincent Island, Florida as
      a weak tropical storm.
   • Hurricane Charley striking the southwestern coast of Florida as a Category 4
      hurricane on the Saffir-Simpson Hurricane Scale. Charley was the strongest
      hurricane to hit the United States since Andrew in 1992 and, although small in size, it
      caused catastrophic wind damage in Charlotte County, Florida.
   • Hurricane Danielle
   • Tropical Storm Earl
   • Hurricane Frances hit the Florida east coast as a category 2 hurricane.
   • Hurricane Gaston
   • Tropical Storm Hermine
   • Hurricane Ivan although we did not get a direct hit we braced and prepared for days
   • Tropical Depression Ten
   • Hurricane Jeanne hit the central Florida east coast as a category three hurricane.
   • Hurricane Karl
   • Hurricane Lisa
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   •   Tropical Storm Matthew
   •   Subtropical Storm Nicole
   •   Tropical Storm Otto

The 2004 season was devastating enough who knew that it was just a prelude of things to
come. The 2005 Atlantic hurricane season is the busiest on record. The season was
packed with 27 named storms, including 13 hurricanes in which seven were major storms.

The following illustrates the severity of the 2005 hurricane season.

   •   27 named storms (previous record: 21 in 1933)
   •   13 hurricanes (previous record: 12 in 1969)
   •   7 major hurricanes hitting the U.S. (previous record: 3 in 2004)
   •   3 category five hurricanes (previous record: 2 in 1960 and 1961)
   •   7 tropical storms before August 1 (previous record: 5 in 1997)
   •   Two-year consecutive total of tropical storms: 41 (previous record: 32 most recently
       in 1995-96)
   •   Two-year consecutive total of hurricanes: 24 (previous record: 21 in 1886-87)
   •   Two-year consecutive total of major hurricanes: 13 (ties record in 1950-51)
   •   Two-year consecutive major hurricane landfalls: 7 (previous record: 5 in 1954-55)
   •   Two -year consecutive Florida major hurricane landfalls: 5 (previous record: 3 in
       1949-50)
   •   Three-year consecutive total of tropical storms: 57 (previous record: 43 most recently
       in 2002-04)
   •   Three-year consecutive total of hurricanes: 30 (previous record: 27 in 1886-88)
   •   Three-year consecutive total of major hurricanes: 16 (ties record in 1949-51 and
       1950-52)

Costliest: Hurricane Katrina (at least $80 billion) (previous record Andrew, $26.5 billion in
1992 dollars)

Deadliest: U.S. Hurricane since 1928: Katrina (at least 1,300)

Strongest:
   • Hurricane in the Atlantic Basin: Wilma 882 millibars (mb) (previous record: Gilbert at
       888 mb)
   • Three of the six strongest hurricanes on record:
           Wilma 882 mb (1st)
           Rita 897 mb (4th)
           Katrina 902 mb (6th)
July hurricanes: Emily (155 mph top sustained winds) (previous record: Dennis (150 mph) in
2005; Hurricane #1 (140 mph) in 1926

The 2005 hurricane season shattered records. It was the most devastating hurricane
season known to man. We had to reach deep onto the naming process and choose from
the Greek alphabet for the first time since storms began acquiring names, in 1953.
Hurricane Wilma completed the pre determined list of 21 names. Tropical Storm Alpha and
Hurricane Beta hit the Dominican Republic and Nicaragua. Tropical Storm Gamma brought
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devastating floods to areas of Central America. Tropical Storm Delta stayed over open
water mostly, and then moved across the Canary Islands at the northwest coast of Africa.
Tropical Storm Epsilon formed on the next to last day of the Atlantic hurricane season.
Tropical Storm Zeta formed on December 30 and final fizzled in early January 2006.

This increase in the number and intensity of tropical storms and hurricanes can span
multiple decades (approximately 20 to 30 years). NOAA will make its official 2006 season
forecast in May, prior to the June 1st start to the season. Others such as long-time
forecasting guru William Gray of Colorado State University have already predicted the 2006
season.

Gray’s 2006 Forecast:

   •   17 named tropical storms; an average season has 9.6.
   •   9 hurricanes compared to the average of 5.9.
   •   5 major hurricanes with winds exceeding 110 mph; average is 2.3.

Though these statistical predictions cannot portend when any of the storms will form or
where they will go, Gray and colleagues calculate an 81 percent chance that at least one
major hurricane will hit the U.S. coast in 2006.

The current series of busy seasons is part of a long-term cycle that climatologists had
predicted years ago. The Atlantic is in its 11th year of heightened activity. It is expected to
"continue for the next decade or perhaps longer," said officials with the National Weather
Service last week.

In 2002, the Florida Legislature passed a law that combined the Florida Residential Property
and Casualty Joint Underwriting Association (FRPCJUA) and the Florida Windstorm
Underwriting Association (FWUA). This resulted in the creation of Citizens Property
insurance Corporation (Citizens), which more efficiently and effectively provides insurance
to, and serves the needs of, property owners in high-risk areas and others who cannot find
coverage in the open, private insurance market.

Citizens Property Insurance Corporation is the defendant in a class action suit filed in Leon
County in which clarification is sought on whether Citizens is responsible for paying for
hurricane damage caused by flooding, which has long been covered by the federal
government.




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                          INSURANCE LAW UPDATE & REVIEW

The association’s fire and casualty insurance covers all of the common property of the
association. The association does not cover the personal property of association owners. A
developer controlled condominium association must exercise due diligence
in obtaining and maintaining adequate insurance to protect the association, the association
property, the common elements, and the condominium property.

For condominiums and cooperatives, a policy covers the building, building contents, and
any equipment the association owns. Coverage includes but is not limited to structures,
elevators, halls, lobbies, recreational facilities, fences, signs, lighting, and any other
common elements of the association, if owned by the association.

The 2003 Florida legislature amended the Condominium Act regarding insurance, effective
January 1, 2004, with the intent to:

1.     Ensure consistency in coverage for associations and unit owners regardless of
       the date of the declaration, and
2.     Encourage lower or stable insurance premiums for associations. The amendment
       clearly identifies what part of the condominium the association must insure and that
  which the unit owner must insure. Generally, the new statute increases the      items to
  be insured by the unit owner and decreases the items to be insured by the
       association.

Unit Owner Coverage after January 1, 2004

Individual unit owners shall insure:

1.     All floor, wall and ceiling coverings
2.     Built-in cabinets & countertops
3.     Electrical fixtures, appliances
4.     Air conditioner or heating equipment
5.     Water heaters
6.     Water filters
7.     Window treatments including curtain, drapes, blinds, hardware, & similar window
treatment components or replacements of these located within the boundaries of a unit and
serve only one unit
8.     All air conditioning compressors servicing only an individual unit, whether or
    not located within the boundary of the unit

The unit owner policy must cover these items even if they were “initially installed and in
accordance with the original plans and specifications” of the association. The
association is no longer able to insure these items, unlike in the past, when the
association, by the conditions in its declaration, could choose to insure them or require the
unit owner to insure them. The unit owner must also cover upgrades and items not in
accordance with the original plans and specifications.


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Association Coverage after January 1, 2004

The association must provide primary coverage for:

1. All portions of the condominium property located outside the units
2. Condominium property located inside the units as such property was initially
installed or replacements similar in kind and quality and in accordance with the original
plans & specifications, or, if the original plans and specifications are not available, as they
existed at the time the unit was initially conveyed (excluding the 8 items listed above as unit
owner coverage required items)
3. All portions of the condominium property for which the declaration of condominium
requires coverage by the association.

The association only insures condominium property initially installed and in accordance with
the original plans and specifications, not upgrades. This is not a change under the new
statute as the responsibility to insure upgrades has always rested with the unit owner. Note
that there is no statutory requirement that the unit owner be listed as an additional insured
under the association policy.

Other Insurance News

Tom Gallagher, Florida's Chief Financial Officer, announced a new mediation program to
help condominium associations resolve disputes with their insurance companies over
their hurricane claims. Gallagher said the mediation program, set up for property owners
after the 2004 storms, has successfully helped more than 11,000 storm victims reach
satisfactory settlements on their hurricane claims.

"Many condominium communities in our state have not yet started to rebuild because they
are struggling with their insurance companies to get their claims paid," said Gallagher, who
oversees the Department of Financial Services. "My goal is to offer them a no-cost
alternative to resolving their claims and help them successfully recover from catastrophic
losses."

The mediation program offers a dispute resolution process for condominium associations
and other commercial residential properties to resolve hurricane claims prior to pursuing
other options such as going to court. The mediations are free of charge and using the
program does not preclude an association's right to take the dispute to court or to invoke the
policy appraisal clause.

When the department receives a request for mediation the insurance company is informed it
has 21 days to settle the claim, or it will have to appear at mediation with the policyholder or
its legal representative. Mediation meetings will be facilitated by Supreme Court-certified
mediators provided through the Collins Center for Public Policy.
Storm victims can learn more about mediation services by calling the hurricane hotline at 1-
800-22-STORM. Visit our website at www.fldfs.com and click on the Condo Mediation
button on the right for more information.


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The National Association of Insurance Commissioners (NAIC) voted to adopt a Resolution
supporting a national catastrophe plan that builds on state regulation, maximizes the private
market, encourages personal safety and mitigation, and provides a comprehensive solution
to problems of exposure in a natural catastrophe. Later this week, Florida Insurance
Commissioner Kevin McCarty is delivering the Resolution to members of Congress during a
trip to Washington D.C. "After the summit in San Francisco, this is an important next step
in the process of building consensus, increasing capacity and ensuring all Americans have
access to a comprehensive policy, " McCarty said.

The group's Catastrophe Insurance Working Group of the Property and Casualty Insurance
(C) Committee has been working on a national natural disaster plan and a response to
hurricane damages totaling more than $70 billion in insured losses in the 2004 and 2005
hurricane seasons. At the request of Commissioner McCarty, the NAIC approved the
resolution during its executive/plenary session Sunday, during the Winter National Meeting.
The NAIC had passed a resolution in 1995 that recognized the importance of developing
additional insurance capacity to cover catastrophic natural perils and endorsed a national
disaster plan.


                  POSSIBLE/PROPOSED INSURANCE LAW CHANGES

The following are excerpts from proposed bills or proposed changes to insurance laws and
policies.

      Require peril carriers to issue and service wind policies in Citizens Property
      Insurance Corporation's High Risk Account, (HRA) with the HRA responsible for 100
      percent of the losses
      A three-year delay in reduction of Citizens HRA probable maximum loss in Dade,
      Broward and Palm Beach counties
      Separate rates in Citizens for property stead and seasonal properties
      Some flexibility for carriers in setting property insurance rates
      Restructure Citizens to remove the subsidy from any properties other than primary
      residences of Florida residents. Citizens would still make coverage available to all
      property owners who are currently eligible for Citizens
      Retain existing requirements for Citizen’s rates, and add a provision stating that rates
      will be deemed to be inadequate if they are not sufficient to generate the funding
      (through cash flow, interest earnings)
      Retain the three existing Citizens accounts (commercial- residential, personal lines,
      and high-risk), but eligibility for coverage under these accounts is limited to properties
      (single family properties, condo units, and certain condo associations) qualified
      as property stead property as defined by law. WITH RESPECT TO CONDOMINIUM
      ASSOCIATION POLICIES, THE ASSOCIATION WOULD BE ELIGIBLE FOR A
      CITIZENS POLICY ONLY IF AT LEAST 50% OF THE UNITS IN THE
      ASSOCIATION ARE QUALIFIED AS PROPERTY STEADS.
      The coverage’s provided and the geographic areas eligible for wind-only policies
      would remain the same.


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      In the event of a deficit in one of the property stead-only accounts, the assessment
      process and the assessment base would remain the same.
      Create a new Citizens account for non-property stead properties. This account would
      write windstorm-only policies (residential, commercial-residential, and commercial-
      commercial) in the Citizens high-risk area and would write full personal lines
      residential policies in the rest of the state.
      Use a 50-year PML as the benchmark for rate adequacy for property stead properties
      and the use of the 250-year PML as the benchmark for rate adequacy in the non-
      subsidized pool.
      Retain existing requirements for Citizens rates, and add a provision stating that rates
      for the non-subsidized pool will be deemed to be inadequate if they are not sufficient
      to generate the funding (through cash flow, interest earnings, Cat Fund coverage,
      private reinsurance, and other funds) to enable Citizens to sustain a 250-year
      Probable Maximum Loss event in any year without creating a deficit in the non-
      property stead account.
      When the resources of the account are not sufficient to pay current and anticipated
      claims and expenses, Citizens would levy an assessment, payable immediately
      rather than upon policy renewal, on all non-property stead account policyholders. If
      these mid-term assessments were insufficient to pay current and anticipated claims
      and expenses, Citizens could also levy an assessment payable upon issuance or
      renewal of any Citizens non-property stead policy.
      Each assessment on Citizens non-property stead policies would be capped at 100%
      of premium In the event that these assessments were not sufficient to pay current
      and anticipated claims and expenses, Citizens could provide a loan from another
      account to the non-property stead account, payable on terms and conditions
      determined by the Citizens board.
      The minimum deductible for properties covered by the non-property stead account
      with an insured value of $250,000 or more would be 5% of the insured value.
      The assessable nature of the Citizens non-property stead policies would be displayed
      prominently on the application and declarations page, and the policyholder would
      have to sign an acknowledgement before the policy could be issued. The disclosures
      would also include a notice that alternative coverage under a non-assessable policy
      may be available in the non-admitted insurance market.
      Restrict eligibility for property owner's insurance with Citizens to properties with a
      dwelling value less than $1 million. Exempts admitted insurers in the private market
      who want to insure these properties from the OIR's rate approval.
      The statute prohibiting false or fraudulent insurance applications would be
      amended to specify that a fraudulent claim of property stead status in connection with
      issuance or renewal of a Citizens policy constitutes felony insurance fraud.

Advantages of these Proposals

1. The use of the 50-year PML as the benchmark for rate adequacy for property stead
properties and the use of the 250-year PML as the benchmark for rate adequacy in the non-
subsidized pool should assure that Citizens would have enough premium revenue to
procure reinsurance to cover losses not covered by the Cat Fund and should substantially
reduce the amount and likelihood of assessments.

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2. Separating non-property stead properties from the main part of Citizens substantially
reduces the size of losses that could result in assessments on the general public.
Additionally, to the extent that the current system constitutes a subsidy that transfers money
from property owners generally to high-risk coastal property owners, this approach has the
advantage of limiting that subsidy to a person's primary residence and excludes vacation
properties of non- residents and Florida residents alike.

3. Many owners of coastal non-property stead properties would seek coverage in the non-
admitted market, deciding that they were better off with a non-assessable surplus lines
policy, even though it might initially cost more than the assessable Citizens non-property
stead policy. A larger role for non-admitted insurers is an answer to the question of how
Florida can attract new capital to its insurance markets.

Other proposed changes are:

      Exempt hurricane mitigation improvements to property stead property from increasing
      the property's assessed value. Mitigation improvements included are: storm shutters,
      impact- resistant glazing, hurricane clips or straps, or generators for disaster
      preparedness.
      Provide for a 25% rapid cash build-up in the CAT Fund.
      Create the Florida Hurricane Damage Prevention Endowment. The endowment
      would provide for no interest loans for the purpose of hurricane damage prevention
      based on the following priorities:
              Single-family owner-occupied dwellings located in the areas designated as
              high-risk areas for purposes of Citizens Property Insurance Corporation
              coverage
              Single-family owner-occupied dwellings covered by Citizens Property
              Insurance Corporation, wherever located.
              Single-family owner-occupied dwellings that are more than 40 years old.
              All other single-family owner-occupied dwellings.
              All other residential properties.
              Program is available to only stead property with an insured value of $500,000
              or less. Program is administered through commercial financial institutions.
              Appropriates $100 million endowment.
      Allow residential property insurers to increase or decrease their filed rates by 10%
      statewide or 25% within a rating territory without OIR approval of the rate change.
      Requirements of annual reports regarding the impact of flexible rate regulation.
      Limit to the OIR and the Insurance Consumer Advocates from questioning specified
      aspects about the hurricane models an insurer uses to justify its rate filing if the
      Florida Commission on Hurricane Loss Projection Methodology has reviewed the
      hurricane models used.
      Require a public hearing on residential property rate filings of 25% or more, rather
      than 15%.
      Facilitate the payment of insurance claims by electronic means.
      Clarify that unless the policyholder refuses law and ordinance coverage, the policy is
      deemed to include law and ordinance coverage at 25% of the dwelling limit.



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       Require insurers to pay replacement costs without reservation or holdback of any
       depreciated value on dwellings only. That requirement is deleted for personal
       property.
       Require the OIR to adopt rules in advance of the disaster regarding claim reporting,
       premium payment, and temporary postponement of cancellations and non-renewals
       for use in natural disaster situations.
       Authorize the Florida Insurance Guaranty Association (FIGA) to contract with a city or
       county, or a combination of such entities, to issue tax -exempt revenue bonds for
       hurricane recovery. The provisions of the bill closely follow the law enacted by the
       1992 Legislature to enable FIGA to pay the hurricane-related claims of insurers who
       became insolvent following Hurricane Andrew. As in 1993, FIGA will guarantee the
       tax-exempt bonds through the imposition of an emergency assessment of up to 2
       percent in addition to the regular FIGA assessment the guaranty association is
       authorized to charge the emergency assessment for the life of the bonds.
       The statute prohibiting false or fraudulent insurance applications would be amended
       to specify that a fraudulent claim of property stead status in connection with issuance
       or renewal of a Citizens policy constitutes felony insurance fraud.
       Requires all of Florida to comply with the existing building code regarding hurricane
       protection and wind-resistant features including the now exempted panhandle.

Other Forthcoming Possible Changes

The 2004 hurricane season, with four major storms striking the state, produced major issues
and/or crises involving hurricane deductibles, the Florida Hurricane Catastrophe Fund and
Citizens Property Insurance Corporation. House Speaker Allan Bense and Senate President
Tom Lee created the Joint Select Committee on Hurricane Insurance and CFO Tom
Gallagher created a special task force to examine weaknesses in Citizens' processing of its
hurricane claims and other problems. It is almost certain the Legislature will adopt hurricane
insurance legislation, including, possibly, reducing the Cat Fund retention, at least for multi-
storm seasons like 2004. A major Citizens package also likely will be passed.




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                                TERMINOLOGY REVIEW

The following are key insurance and financial terms. In the study of insurance and finances,
one must have a basic understanding of these terms.

Absolute Liability: Liability for damages even if the faults or negligence cannot be
proven.

Accident: An event or occurrence which is unintended.

Acquisition Costs: The insurer's cost of putting new business in force, including the
commissions, administrative, underwriting cost, fees for required professional reports and
inspection reports, sales & marketing expense, etc.

Actual Cash Value (ACV): The cost of replacing or restoring property at prevailing cost at
the time the loss occurred, less depreciation, however caused.

Additional insured: An insured party specifically named in and under an insurance policy.
Generally evidenced by a certificate of insurance

Adhesion: Contract of: A contract that is drafted by one party and accepted or rejected by
the other, with no opportunity to bargain with respect to its terms and conditions.

Adjuster: A person who investigates and quantifies losses for an insurance carrier and
assist in the settling of claims.

Agent: An insurance company representative licensed by the state, who solicits,
negotiates or procures contracts of insurance, and provides customer service to the
policyholder.

Aggregate Deductible: Deductible in some property and health insurance contracts in
which all covered losses during a (calendar or policy) year are added together and the
insurer pays only when the aggregate deductible amount is exceeded.

Alien Insurer: An insurance company domiciled in another country.

Allied Lines: A term for forms of property insurance allied with fire insurance, covering
such perils as windstorm, hail, explosion, and riot.

All-Risks Policy: Coverage by an insurance contract that promises to cover all losses
except those specifically excluded in the policy.




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Amendment: A formal document changing the provisions of an insurance policy signed
jointly by the insurance company officer and the policy holder or their designees.

Amortization: Paying an interest-bearing liability by gradual reduction through a series of
installments, as opposed to one lump-sum payment.

Annual Statement: The annual report, as of December 31, of an insurer to a state
insurance department, showing assets and liabilities, receipts and disbursements.

Arbitration: A form of alternative dispute resolution where an unbiased person or panel
renders an opinion as to responsibility for or extent of a loss.

Arson: The willful and malicious burning of, or attempt to burn, a property often with
criminal or fraudulent intent.

Assessment Association: An insurer that does not charge a fixed premium for
insurance, but rather assesses its members periodically to pay its losses. Assessment
insurers usually collect an advance premium which is estimated to cover losses and
expenses, but reserve the right to make additional assessments whenever the premium
collected is insufficient.

Assets: All funds, property, goods, securities, rights of action, or resources of any kind
owned by an insurance company. Statutory accounting, however, excludes non-admitted
assets, such as deferred or overdue premiums, that would be considered assets under
generally accepted accounting principles (GAAP).

Assignment: The legal transfer of one person's interest in an insurance policy to another
person.

Assumption certificate: An endorsement to an insurance contract stating that
reinsurance proceeds will be paid directly to the named payee in the event of an insurer's
insolvency.

Assumption of Risk Doctrine: Defense against a negligence claim that bars recovery for
damages if a person understands and recognizes the danger inherent in a particular
activity or occupation.

Attachment Point: The dollar amount of loss where insurance begins to provide
coverage.

Attractive Nuisance: Condition that can attract and injure children. Occupants of land on
which such a condition exists are liable for injuries to children.


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Bad Faith: The allegation that insurers have failed to act in good faith, i.e., that they have
acted in a manner inconsistent with what a reasonable policyholder would have expected.

Basis: An amount attributed to an asset for income tax purposes; used to determine gain
or loss on sale or transfer; used to determine the value of a gift.

Binder: A written or oral contract issued temporarily to place insurance in force when it is
not possible to issue a new policy or endorse the existing policy immediately. A binder is
subject to the premium and all the terms of the policy to be issued.

Binding Receipt: A receipt given for a premium payment accompanying the application
for insurance. If the policy is approved, this binds the company to make the policy effective
from the date of the receipt.

Boiler and Machinery Insurance: Coverage for loss arising out of the operation of
pressure, mechanical, and electrical equipment. It covers loss of the boiler and machinery
itself, damage to other property, and business interruption losses.

Bond: A certificate issued by a government or corporation as evidence of a debt. The
issuer of the bond promises to pay the bondholder a specified amount of interest for a
specified period and to repay the loan on the expiration (maturity) date.

Break in Service: A calendar year, plan year or other consecutive 12-month period
designated by the plan during which a plan participant does not complete more than 500
hours of service.

Broker: A marketing specialist who represents buyers of property and liability insurance
and who deals with either agents or companies in arranging for the coverage required by
the customer.

Burglary and Theft Insurance: Coverage against property losses due to burglary,
robbery, or larceny.

Business Income Exposure: Lost profits resulting from damage to property that halts the
business.

Business Interruption Exposure: See business income exposure

Business Insurance: A policy which primarily provides coverage of benefits to a business
as contrasted to an individual. It is issued to indemnify a business for the loss of services
of a key employee or a partner who becomes disabled.

 Business Interruption Insurance: Protection for a business owner against losses
 resulting from a temporary shutdown because of fire or other insured peril. The insurance
 provides reimbursement for lost net profits and necessary continuing expenses.
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Calendar-Year Deductible: Amount payable by an insured during a calendar year before
a group or individual health insurance policy begins to pay for medical expenses.

Cancelable: A contract of insurance that may be canceled during the policy term y the
insurer or insured.

Cancellation: The discontinuance of an insurance policy before its normal expiration date,
either by the insured or the company.

Capacity: The amount of capital available to an insurance company or to the industry as a
whole for underwriting general insurance coverage or coverage for specific perils.

Capital Gain: Profit realized on the sale of securities. An unrealized capital gain is an
increase in the value of securities that have not been sold.

Casualty Insurance: Insurance concerned with the insured's legal liability for injuries to
others or damage to other persons' property; also encompasses such forms of insurance
as plate glass, burglary, robbery and workers' compensation.

Catastrophe: Event which causes a loss of extraordinary magnitude, such as a hurricane
or tornado.

Causes-of-Loss Form: Form added to commercial property insurance policy that indicates
the causes of loss that are covered. There are three causes-of-loss forms: basic,
broad, and special. Basic property insurance policies are written to cover the following:
perils of fire, lightning, explosion, windstorm, hail, smoke, aircraft or vehicle damage, riot or
civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. Other
property insurance policies, often referred to as the broad form policy, add coverage’s for:
water damage; weight of snow, ice, or sleet; breakage of glass; and falling objects. The
broadest coverage is the special form, which is best known as the all risk form. All risk
covers all causes of loss, except those specifically excluded from coverage. Basic Cause
of Loss: Property insurance covering only those causes of loss (perils) specified as
covered. The types of losses insured are fire, lightning, explosion, windstorm or hail,
smoke, aircraft or vehicle damage, riot or civil commotion, vandalism, sprinkler leakage,
sinkhole collapse, and volcanic action. Coverage for earthquake, flood, terrorism, war,
mold and intentional loss are usually excluded on all Commercial Property Policies.

Certificate of Insurance: A statement of coverage issued to an individual insured under a
group insurance contract, outlining the insurance benefits and principal provisions
applicable to the member.

Certified Financial Planner (CFP): Professional who has attained a high degree of
technical competency in financial planning and has passed a series of professional
examinations. Follow these links for further information in the U.S., Canada, and other
countries.

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Certified Insurance Counselor (CIC): Professional in property and liability insurance who
has passed a series of examinations by the Society of Certified Insurance Counselors.

Cession: Amount of the insurance ceded to a reinsurer by the original insuring company
in a reinsurance operation.

Chartered Financial Consultant (ChFC): An individual who has attained a high degree of
technical competency in the fields of financial planning, investments, and life and health
insurance and has passed ten professional examinations administered by the American
College.

Chartered Property and Casualty Underwriter (CPCU): Professional who has attained a
high degree of technical competency in property and liability insurance and has passed
ten professional examinations administered by the American Institute for Property and
Liability Underwriters.

Claim: A request for payment of a loss which may come under the terms of an insurance
contract.

Civil law: The portion of law that deals with interactions between individuals. The two
branches of civil law are contract law and tort law.

Claims Adjustor: Person who settles claims: an agent, company adjustor, independent
adjustor, adjustment bureau, or public adjustor.

Claim-Made Policy: A liability insurance policy under which coverage applies to claims
filed during the policy period.

Coinsurance: 1) A provision under which an insured who carries less than the stipulated
percentage of insurance to value, will receive a loss payment that is limited to the same
ratio which the amount of insurance bears to the amount required; 2) a policy provision
frequently found in medical insurance, by which the insured person and the insurer share
the covered losses under a policy in a specified ratio, i.e., 80 percent by the insurer and 20
percent by the insured.

Combined Ratio: Basically, a measure of the relationship between dollars spent for
claims and expenses and premium dollars taken in; more specifically, the sum of the ratio
of losses incurred to premiums earned and the ratio of commissions and expenses
incurred to premiums written. A ratio above 100 means that for every premium dollar taken
in, more than a dollar went for losses, expenses, and commissions.

Commercial General Liability Policy (CGL): Commercial liability policy drafted by the
Insurance Services Office containing two coverage forms-an occurrence form and a
claims-made form.

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Commercial Lines: Insurance for businesses, organizations, institutions, governmental
agencies, and other commercial establishments.

Commercial Multiple Peril Policy: A package of insurance that includes a wide range of
essential coverage’s for the commercial establishment.

Commercial Package Policy (CPP): A commercial policy that can be designed to meet
the specific insurance needs of business firms. Property and liability coverage forms are
combined to form a single policy.

Commission: The part of an insurance premium paid by the insurer to an agent or broker
for his services in procuring and servicing the insurance.

Commissioner: A state officer who administers the state's insurance laws and
regulations. In some states, this regulator is called the director or superintendent of
insurance.

Common Law: The law that has evolved over time as a result of previous court decisions,
rather than having been enacted by a legislative body

Common Stock: Securities that represent an ownership interest in a corporation.

Community Property: A special ownership form requiring that one-half of all property
earned by a husband or wife during marriage belongs to each. Community property laws
do not generally apply to property acquired by gift, by will, or by descent.

Company Adjustor: Claims adjustor who is a salaried employee representing only one
company.

Comparative Negligence: Under this concept, a plaintiff (the person bringing suit) may
recover damages even though guilty of some negligence. His or her recovery, however, is
reduced by the amount or percent of that negligence.

Completed Operations: Liability arising out of faulty work performed away from the
premises after the work or operations are completed. Applicable to contractors, plumbers,
electricians, repair shops, and similar firms.

Comprehensive Personal Liability Insurance: Protection against loss arising out of
legal liability to pay money for damage or injury to others for which the insured is
responsible. It does not include automobile or business operation liabilities.

Compulsory Insurance: Any form of insurance which is required by law.



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Concealment: Deliberate failure of an applicant for insurance to reveal a material fact to
the insurer.

Concurrent Causation: Legal doctrine that states when a property loss is due to two
causes, one that is excluded and one that is covered, the policy provides coverage.

Conditions: Provisions inserted in an insurance contract that qualify or place limitations
on the insurer's promise to perform.

Conservation: The attempt by the insurer to prevent the lapse of a policy.

Consideration: One of the elements for a binding contract. Consideration is acceptance
by the insurance company of the payment of the premium and the statement made by the
prospective policyholder in the application.

Consideration Clause: The clause that stipulates the basis on which the company issues
the insurance contract. In health policies, the consideration is usually the statements in the
application and the payment of premium.

Consequential Loss: Financial loss occurring as the consequence of some other loss,
often called an indirect loss.

Constructive Total Loss: an insurance claim where the value to repair the property
exceeds the market value of that property.

Contingent Employers Liability Insurance: provides payment on behalf of the employer
for bodily injury to an employee if that person is ineligible to receive workers compensation
benefits, e.g., an "occasional" employee.

Contingent Liability: Liability arising out of work done by independent contractors for a
firm. A firm may be liable for the work done by an independent contractor if the activity is
illegal, the situation does not permit delegation of authority, or the work is inherently
dangerous.

Contingent Owner: The person to succeed as owner of an insurance policy if the original
owner dies.

Contract: A binding agreement between two or more parties for the doing or not doing of
certain things. A contract of insurance is embodied in a written document called the policy.

Contract of adhesion: Occurs when one party to the contract writes it and offers other
parties only the option of acceptance or rejection. In such a circumstance, the law
interprets any ambiguities in the contract against the party writing it.


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Contractual Liability: Legal liability of another party that the business firm agrees to
assume by a written or oral contract.

Contractual risk transfer: A major method of loss financing through which a legal
agreement is used to transfer risk to another party

Contributory Negligence: Negligence of the damaged person that helped to cause the
accident. Some states bar recovery to the plaintiff if the plaintiff was contributory negligent
to any extent. Others apply comparative negligence.

Convertible Bond: A bond that offers the holder the privilege of converting the bond into
a specified number of shares of stock.

Cost Basis: An amount attributed to an asset for income tax purposes; used to determine
gain or loss on sale or transfer; used to determine the value of a gift.

Cost of Pure Risk: All costs related to pure risk which includes, from the perspective of
shareholders, retained risk, loss prevention costs, insurance costs, and more.

Cost of Risk: The reduction in business value that arises as a result of risk.

Coverage: The scope of protection provided under a contract of insurance, any of several
risks covered by a policy.

CPCU: See Chartered Property and Casualty Underwriter.

Credibility: A statistical measure of the degree to which past results make good forecasts
of future results.

Credibility Factor: The weight given to an individual insured's past experience in
computing premiums for future coverage.

Cross Liability Clause: Obligates an insurer to protect each insured separately.




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Damage to Property of Others: Damage covered up to $500 per occurrence for an
insured who damages another's property. Payment is made despite the lack of legal
liability. Coverage is included in Section II of the property owners policy.

Debenture: A bond that is backed only by the general credit of the issuing corporation. No
specific property is pledged as security behind the loan.

Declarations: Statements in an insurance contract that provide information about the
property or life to be insured and used for underwriting and rating purposes and
identification of the property or life to be insured.

Declination: The insurer's refusal to insure an individual after careful evaluation of the
application for insurance and any other pertinent factors.

Deductible: An amount which a policyholder agrees to pay, per claim or per accident,
toward the total amount of an insured loss.

Depreciation: A decrease in the value of property over a period of time due to wear and
tear or obsolescence. Depreciation is used to determine the actual cash value of property
at time of loss. (See Actual Cash Value)

Difference in Conditions Insurance (DIC): "All-risks" policy that covers other perils not
insured by basic property insurance contracts, supplemental to and excluding the
coverage provided by underlying contracts.

Direct Loss: Financial loss that results directly from an insured peril.

Direct Writer: The industry term for a company which uses its own sales employees to
write its policies. Sometimes refers to companies which contract with exclusive agents.

Directors' and Officers' Liability: The exposure of corporate managers to claims from
shareholders, government agencies, and employees, and others alleging
mismanagement.

Disappearing Deductible: Deductible in an insurance contract that provides for a
decreasing deductible amount as the size of the loss increases; so that small claims are
not paid but large losses are paid in full.

Disposable Personal Income: The personal income less personal tax and non-tax
payments. It is the income available to people for spending and saving.




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Doctrine of reasonable expectations: a legal doctrine that holds policies will be
interpreted according to how a reasonable person who is not trained in the law would
expect.

Domestic Insurer: An insurance company is a domestic company in the state in which it
is incorporated.

Dwelling Property 1: (“Basic Form”) Property insurance policy that insures the dwelling at
actual cash value, other structures, personal property, fair rental value, and certain other
coverage’s. Covers a limited number of perils.

Dwelling Property 2: (“Broad Form”) Property insurance policy that insures the dwelling
and other structures at replacement cost. It adds additional coverage’s and has a greater
list of covered perils than the Dwelling Property 1 policy.

Dwelling Property 3: Property insurance policy that covers the dwelling and other
structures against direct physical loss from any peril except for those perils otherwise
excluded. However, personal property is covered on a named-perils basis.

Economic Loss: The estimated total cost, both insured and uninsured, of mishaps (such
as motor vehicle accidents, work accidents, and fires); includes such factors as property
damage, funeral expenses, wage loss, insurance administration costs, and medical,
hospital and legal costs.

Effective Date: The date on which the insurance under a policy begins.

Efficient level of risk: the amount of risk remaining after an individual or business
pursues activities such as loss control, loss financing, and internal risk reduction, to the
point where marginal benefit equals marginal cost

Elements of a Negligent Act: Four elements an injured person must show to prove
negligence: 1. existence of a legal duty to use reasonable care, 2.failure to perform that
duty, 3.damages or injury to the claimant, and 4. proximate cause relationship between
the negligent act and the infliction of damages.

Employee Dishonesty Coverage Form: Commercial crime insurance form drafted by the
Insurance Services Office that covers the loss of money, securities, and other covered
property because of any dishonest act of a covered employee or employees.

Employers Contingent Liability Insurance: protects the employer for injuries sustained
by an employee in the course of employment where he is otherwise not eligible for
coverage under a Workers Compensation Act in a jurisdiction where the injury took place.

Endorsement: An amendment of the policy usually by means of a rubber stamp or rider.

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Endorsements: An additional piece of paper, not a part of the original contract, which
cites certain terms and which, when attached to the original contract, becomes a legal part
of that contract.

Entire Contract Clause: Provision in life insurance policies stating that the life insurance
policy and attached application constitute the entire contract between the parties. Entity
Purchase Agreement: specifies the terms for the business to buy back a deceased's share
of the business's ownership.

Environmental Impairment Liability Insurance: A form of insurance designed to cover
losses and liabilities arising from damage to property by pollution.

Errors and Omissions Insurance: Liability insurance policy that provides protection
against loss incurred by a client because of some negligent act, error, or omission by the
insured.

Estoppel: Legal doctrine that prevents a person from denying the truth of a previous
representation of fact, especially when such representation has been relied on by the one
to whom the statement was made.

Excess and Surplus Insurance: (1) Insurance to cover losses above a certain amount,
with losses below that amount usually covered by a regular policy. (2) Insurance to cover
an unusual or one-time risk, e.g., damage to a musician's hands or the multiple perils of a
convention, for which coverage is unavailable in the normal market. (See also "umbrella
liability" and "surplus lines.")

Exclusions: Specific conditions or circumstances listed in the policy for which the policy
will not provide benefit payments.

Exclusive Agent: An agent who is employed by one and only one insurance company
and who solicits business exclusively for that company.

Exclusive Remedy Doctrine: Doctrine in workers compensation insurance which states
that workers compensation benefits should be the exclusive or sole source of recovery for
workers who have a job-related accident or disease; doctrine has been eroded by legal
decisions.

Exclusion or Exception: Specified conditions or circumstances, listed in the policy, for
which the policy will not provide benefits. Coverage for Earthquake, Flood, Terrorism, War,
Mold and Intentional Loss are usually excluded on all Commercial Property Policies.




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Exposure Unit: Unit of measurement used in insurance pricing.

Extended Coverage Insurance: Protection for the insured against property damage
caused by windstorm, hail, smoke, explosion, riot, attending a strike, civil commotion,
vehicle and aircraft. This is provided in conjunction with the fire insurance policy and the
various "package" policies.

Extended Reporting Period: An additional period of time after policy expiration during
which valid claims will be paid under a claims-made policy of liability insurance.

Extended Reporting Period Endorsement: Added to a claims-made policy of liability
insurance to provide additional period of time during which valid claims will be paid.

Extended Term Insurance: A form of insurance available as a non-forfeiture option. It
provides the original amount of insurance for a limited period of time.

Extortion: Surrender of property away from the premises as a result of a threat to do
bodily harm to the named insured, relative, or invitee who is being held captive.

Extra Expense Insurance: Type of business income insurance that covers the extra
expenses incurred to continue operations after a loss has occurred.

Face Amount: The amount stated on the face of the policy that will be paid in case of
death or at the maturity of the policy. It does not include additional amounts payable under
accidental death or other special provisions, or acquired through the application of policy
dividends.

Fair Rental Value: Amount payable to an insured property owner for loss of rental income
due to damage that makes the premises uninhabitable.

Federal Crime Insurance: Insurance against burglary, larceny, and robbery losses
offered by the federal government where the Federal Insurance Administration has
determined that an insurance availability problem exists.

Federal Flood Insurance: Insurance sold by private insurers with rates subsidized by the
federal government to persons who reside in flood zones and whose community joins the
program and agrees to establish and enforce flood control and land-use measures.

Federal Surety Bond: Type of surety bond required by federal agencies that regulates
the actions of business firms. It guarantees that the bonded party will comply with federal
standards, pay all taxes or duties accrued, or pay any penalty if the bondholder fails to
pay.



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Fiduciary: A person who holds something in trust for another.

Fidelity Bond: Bond that protects an employer against dishonest or fraudulent acts of
employees, such as embezzlement, fraud, or theft of money.

Fire: A combustion accompanied by a flame or glow, which escapes its normal confines to
cause damage.

Fire Insurance: Coverage for losses caused by fire and lightning, plus resultant damage
caused by smoke and water.

Fire Legal Liability: Liability of a firm or person for fire damage caused by negligence of
and damage to property of others.

First Party Claim: A demand made by a policyholder reporting an insured event directly
to his company.

First Party Coverage: An insurance coverage under which the policyholder collects
compensation for losses from the insured's own insurer rather than from the insurer of the
person who caused the accident.

Flood Insurance: Coverage against loss resulting from the flood peril, widely available at
low cost under a program developed by the private industry and the federal government.

Foreign Insurer: An insurer is a foreign company in any state other than the one in which
it is incorporated.

Forgery or Alteration Coverage Form: Commercial crime insurance form by the
Insurance Services Office that covers loss resulting from the forgery or alteration of
checks, drafts, bills of exchange, promissory notes, and similar instruments.

Fortuitous Loss: Unforeseen and unexpected loss that occurs as a result of chance.

General Damages: Damages awarded to an injured person for intangible loss which
cannot be measured directly by dollars. Also known as "pain and suffering." General
damages are distinguished from special damages which are awarded for actual economic
loss, such as medical costs, loss of income, etc.

General Liability Insurance: Coverage that pertains, for the most part, to claims arising
out of the insured's liability for injuries or damage caused by ownership of property,
manufacturing operations, contracting operations, sale or distribution of products, and the
operation of machinery, as well as professional services.


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Generally Accepted Accounting Principles (GAAP): Principles of accounting and
reporting business results developed by the American Institute of Public Accountants.

Glass Insurance: Protection for loss of or damage to glass and its appurtenances.

Grace Period: A specified period after a premium payment is due, in which the
policyholder may make such payment, and during which the protection of the policy
continues.

Gross Negligence: the intentional failure to perform a manifest duty in reckless disregard
of the consequences as affecting the life or property of another.

Gross Premium: The premium paid by the policyholder.

Gross Rate: The sum of the pure premium and a loading element.

Guaranty Fund: A fund, derived from assessments against solvent insurance companies,
to absorb losses of claimants against insolvent insurance companies.

Hazard: Condition that creates or increases the chance of loss.

Hedging: Technique for transferring the risk of unfavorable price fluctuations to a
speculator by purchasing and selling options and futures contracts on an organized
exchange.

Hold-Harmless Clause: Clause written into a contract by which one party agrees to
release another party from all legal liability, such as a retailer who agrees to release the
manufacturer from legal liability if the product injures someone.

Hurricane: A tropical storm marked by extremely low barometric pressure and circular
winds with a velocity of 75 miles an hour or more.

Imputed Negligence: Case in which responsibility for damage can be transferred from the
negligent party to another person, such as an employer.

Incurred Claims: Incurred claims equal the claims paid during the policy year plus the
claim reserves as of the end of the policy year, minus the corresponding reserves as of
the beginning of the policy year. The difference between the year end and beginning of the
year claim reserves is called the increase in reserves and may be added directly to the
paid claims to produce the incurred claims.




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Incurred-but-not-reported (IBNR) reserves: Liability account on an insurer's balance
sheet reflecting claims that are expected based upon statistical projections but which have
not yet been reported to the insurer.

Indemnification: Compensation to the victim of a loss, in whole or in part, by payment,
repair, or replacement.

Indemnity: Legal principle that specifies an insured should not collect more than the
actual cash value of a loss but should be restored to approximately the same financial
position as existed before the loss.

Independent Adjustor: Claims adjustor who offers his or her services to insurance
companies and is compensated by a fee.

Independent Agent: An independent business person who usually represents two or
more insurance companies in a sales and service capacity and who is paid on a
commission basis.

Independent Agency System: Type of property and liability insurance marketing system,
sometimes called the American agency system, in which the agent is an independent
businessperson representing several companies. The agency owns the expirations or
renewal rights to the business, and the agent is compensated by commissions that vary by
line of insurance.

Indexing: Adjusting of values over time to reflect the impact of inflation.

Inflation-Guard Endorsement: Endorsement added at the insured's request to a property
owner’s policy to increase periodically the face amount of insurance of the dwelling and
other policy coverage’s by a specified percentage.

Inherent Vice: A defect or cause of loss arising out of the nature of the goods in
question.

Insolvent: Having insufficient financial resources (assets) to meet financial obligations
(liabilities).

Insurability: Acceptability to the company of an applicant for insurance.

Insurable Risk: The conditions that make a risk insurable are (a) the peril insured against
must produce a definite loss not under the control of the insured, (b) there must be a large
number of homogeneous exposures subject to the same perils, (c) the loss must be
calculable and the cost of insuring it must be economically feasible, (d) the peril must be


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unlikely to affect all insured simultaneously, and (e) the loss produced by a risk must be
definite and have a potential to be financially serious.

Insurance: A system under which individuals, businesses, and other organizations or
entities, in exchange for payment of a sum of money (a premium), are guaranteed
compensation for losses resulting from certain perils under specified conditions.
Protection by written contract against the financial hazards (in whole or in part) of the
happenings of specified fortuitous events.

Insurance Company: Any corporation primarily engaged in the business of furnishing
insurance protection to the public.

Insurance Commissioner: The top insurance regulatory official in a state.

Insurance Examiner: The representative of a state insurance department assigned to
participate in the official audit and examination of the affairs of an insurance company.

Insurance Guaranty Funds: State Funds that provide for the payment of unpaid claims of
insolvent insurers.

Insurance Services Offices (ISO): Major rating organization in property and liability
insurance that drafts policy forms for personal and commercial lines of insurance and
provides rate data on loss costs for property and liability insurance lines.

Insured: A person or organization covered by an insurance policy, including the "named
insured" and any other parties for whom protection is provided under the policy terms.

Insurer: The party to the insurance contract who promises to pay losses or benefits. Also,
any corporation engaged primarily in the business of furnishing insurance to the public.

Insuring Agreement: The part of an insurance contract that states the promises of the
insurer.

Insuring Clause: The clause which sets forth the type of loss being covered by the policy
and the parties to the insurance contract.

Involuntary Costs: Insurance company costs incurred as a result of participating in
insurance pools (e.g., workers compensation). Insurance companies must participate in
these pools as a condition of doing business.

Joint-and-Several Liability: A legal principle that permits the injured party in a tort action
to recover the entire amount of compensation due for injuries from any tort who is able to
pay, regardless of the degree of that party's negligence.


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Joint Underwriting Association: One of several types of "shared market" mechanisms
used to make insurance available to persons who are unable to obtain such insurance in
the regular market. JUAs also have been created in some states to help alleviate
availability problems in the fields of medical malpractice and commercial insurance. A
device used to provide insurance to those who cannot obtain insurance in the voluntary
market. Certain companies (called carriers) issue policies at one rate level and handle
claims, but the ultimate costs are borne by all companies writing insurance in that state.

Judicial Bond: Type of surety bond used for court proceedings and guaranteeing that the
party bonded will fulfill certain obligations specified by law, for example, fiduciary
responsibilities.

Jumbo Risk: A risk involving exceptionally high benefits.

Key-Person Insurance: Insurance designed to protect a business firm against the loss of
income resulting from the death or disability of a key employee.

Labor-Management Relations Act of 1947 (Taft-Hartley Act): This law controls
conditions under which an employer may pay any money to a representative of
employees. `

Lapse: The termination or discontinuance of an insurance policy due to non-payment of a
premium.

Lapsed Policy: A policy terminated for non-payment of premiums. The term is sometimes
limited to a termination occurring before the policy has a cash or other surrender value.

Larceny-theft: The unlawful taking, carrying, leading or riding away of another person's
property.

Last Clear Chance Rule: Statutory modification of the contributory negligence law
allowing the claimant endangered by his or her own negligence to recover damages from
a defendant if the defendant has a last clear chance to avoid the accident but fails to do
so.

Law of Large Numbers: Concept that the greater the number of exposures, the more
closely will actual results approach the probable results expected from an infinite number
of exposures.

Legal Reserve: The minimum reserve which a company must keep to meet future claims
and obligations as they are calculated under the state insurance code.

Liability: Any legally enforceable obligation.


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Liability Insurance: Insurance covering the policyholder's legal liability resulting from
injuries to other persons or damage to their property.

Liability Limits: The stipulated sum or sums beyond which an insurance company is not
liable to protect the insured.

Liability Without Fault: Principle on which workers compensation is based, holding the
employer absolutely liable for occupational injuries or disease suffered by workers,
regardless of who is at fault.

License and Permit Bond: Type of surety bond guaranteeing that the person bonded will
comply with all laws and regulations that govern his or her activities.

Limited Policy: One that covers only specified accidents or sicknesses.

Liquidation: Dissolving a company by selling its assets for cash.

Lloyd’s of London: Insurance marketplace where brokers, representing clients with
insurable risks, deal with Lloyd's underwriters, who in turn represent investors. The
investors are grouped together into syndicates that provide capital to insure the risks.

Loss: The happening of the event for which insurance pays.

Loss Adjustment Expense: Expenses incurred in the process of evaluating, defending
and paying claims.

Loss Avoidance: A risk management technique whereby a situation or activity that may
result in a loss for a firm is avoided or abandoned.

Loss Control: Any conscious action (or decision not to act) intended to reduce the
frequency, severity, or unpredictability of accidental losses.

Loss Expense - Allocated: Handling expenses, such as legal or independent adjuster
fees, paid by an insurance company in settling a claim which can be definitely charged to
that particular claim.

Loss Expense - Unallocated: Salaries and other expenses incurred in connection with
the operation of a claim department of an insurance carrier which cannot be charged to
individual claims.

Loss of Use: Value assigned to not having damaged property available, e.g., the cost of
renting a replacement vehicle while one's car is being repaired.



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Loss Payable Clause: Means of protecting a mortgagee's interest in property by directing
the insurer to make a loss payment to the mortgagee in the event of a loss.

Loss Prevention: Any measure which reduces the probability or frequency of a particular
loss but does not eliminate completely all possibility of that loss.

Loss Ratio: A ratio calculated by dividing claims into premiums. It may be calculated in
several different ways, using paid premiums or earned premiums, and using paid claims
with or without changes in claim reserves and with or without changes in active reserves.

Master Policy: A policy that is issued to an employer or trustee, establishing a group
insurance plan for designated members of an eligible group.

Master Policy (or Master Contract): The policy issued to a group policyholder setting
forth the provisions of the group insurance plan. The individuals insure under the policy
are then issued certificates of insurance.

McCarran-Ferguson Act: Federal law passed in 1945 stating that continued regulation of
the insurance industry by the states is in the public interest and that federal antitrust laws
apply to insurance only to the extent that the industry is not regulated by state law.

Misrepresentation: A false, incorrect, improper, or incomplete statement of a material
fact, made in the application for a policy.

Moral Hazard: Hazard arising from any nonphysical, personal characteristic of a risk that
increases the possibility of loss or may intensify the severity of loss for instance, bad
habits, low integrity, poor financial standing.

Multi-Peril Policy: A package policy which provides protection against a number of
separate perils. Multi-peril policies are not necessarily multiple line policies, since the
combined perils may be all within one insurance line.

Named Perils: Coverage in a property policy that provides protection against loss from
only the perils specifically listed in the policy rather than protection from physical loss.
Examples of named perils are fire, windstorm, theft, smoke, etc.

National Association of Insurance Commissioners (NAIC): The association of
insurance commissioners of various states formed to promote national uniformity in the
regulation of insurance.

Negligence: Failure to use the care that a reasonable and prudent person would have
used under the same or similar circumstances.



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Net Premium: The portion of the premium rate which is designed to cover benefits of the
policy, but not expenses, contingencies, or profit. The term is also used to describe the
portion of the premium remitted to the property office by an agent after deduction of the
agent's commission.

Non-admitted Insurance Company: An insurance company not licensed to do business
in a particular state; such a company, however, may sell excess and surplus insurance in
that state if admitted insurers lack the capacity or expertise.

Non-participating Insurance: Plan of insurance under which the policy-holder is not
entitled to share in the dividend distribution of the company.

Non-profit Insurers: Persons organized under special state laws to provide hospital,
medical, or dental insurance on a non-profit basis. The laws exempt them from certain
types of taxes.

Occupational Hazards: Occupations which expose the insured to greater than normal
physical danger by the very nature of the work in which the insured is engaged, and the
varying periods of absence from the occupation, due to the disability, that can be
expected.

Occurrence: An accident, including continuous or repeated exposure to substantially the
same general, harmful conditions, that results in bodily injury or property damage during
the period of an insurance policy.

Occurrence Policy: A liability insurance policy that covers claims arising out of
occurrences that take place during the policy period, regardless of when the claim is filed.

Over-the Counter Market: A means of buying and selling securities that are not listed on
a stock exchange. Negotiations are carried out by telephone or computer network.

Package Policy: A combination of two or more individual polices or coverage’s into a
single policy. A property owner’s policy, for example, is a package combining property,
liability and theft coverage’s for the property owner.

Peril: The cause of a possible loss, such as fire, windstorm, theft, explosion, or riot.

Persistency: A term used to refer to the length of time insurance remains continuously in
force.

Personal Articles Floater: A form of coverage designed to meet the needs for insurance
on property of a moveable nature. The coverage usually protects against all physical loss,
subject to special exclusions and conditions. Examples of property covered include
jewelry, furs, silverware, and fine arts.

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Personal Injury Protection (PIP): First party no-fault coverage in which an insurer pays,
within the specified limits, the wage loss, medical, hospital and funeral expenses of the
insured.

Personal Lines: Those types of insurance, such as property insurance, for individuals or
families rather than for businesses or organizations.

Personal Representative: A person appointed through the will of a deceased or by a
court to settle the estate of one who dies.

Policy: The legal document issued by the company to the policyholder, which outlines the
conditions and terms of the insurance; also called the policy contract or the contract.

Policy Term: That period for which an insurance policy provides coverage.

Policyholder: A person who pays a premium to an insurance company in exchange for
the insurance protection provided by a policy of insurance.

Policyholders' Surplus: Sum left after liabilities are deducted from assets. Sums such as
paid-in capital and special voluntary reserves are also included in this term. This surplus is
an additional financial protection to policyholders in the event a company suffers
unexpected or catastrophic losses. In effect, it is the financial base that permits a company
to sell insurance.

Pollution Liability: Exposure to lawsuits for injury or cleanup costs that result from
pollution damage.

Pool: An organization of insurers or reinsurers through which particular types of risk are
underwritten and premiums, losses and expenses are shared in agreed-upon amounts.

Pooling Arrangement: An agreement to divide any losses that might occur equally
among two or more people, typically with each paying the average loss.

Preferred Stock: Evidence of ownership which entitles the owners to receive dividends
from the corporation before the common stockholders and which usually also provides a
prior claim to corporate assets if the corporation is dissolved.

Premium: The sum paid by a policyholder to keep an insurance policy in force.




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Premium Finance: Allows the insured to pay part of the premium when coverage takes
effect and pay the rest during the policy period.

Premium Loan: A policy loan made for the purpose of paying premiums.

Premium Tax: A tax, imposed by each state, on the premium income of insurers doing
business in the state.

Primary Insurance: Insurance that pays compensation for a loss ahead of any other
insurance coverage’s the policyholder may have.

Product Liability: Legal liability incurred by a manufacturer, merchant, or distributor
because of injury or damage resulting from the use of its product.

Product Liability Insurance: Protection against financial loss arising out of the legal
liability incurred by a manufacturer, merchant, or distributor because of injury or damage
resulting from the use of a covered product.

Proof of Loss: Documentary evidence required by an insurer to prove a valid claim
exists. It usually consists of a claim form completed by the insured and the insured's
attending physician. For medical expense insurance itemized bills must also be included.

Property Damage Coverage: An agreement by an insurance carrier to protect an insured
against legal liability for damage by an insured to the property of another.

Property Insurance: Insurance providing financial protection against the loss of, or
damage to, real and personal property caused by such perils as fire, theft, windstorm, hail,
explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil
commotion, and smoke.

Property Owners Policy: A package of insurance providing property owners with a broad
range of property and liability coverage’s.

Proration: The adjustment of benefits paid because of a mistake in the amount of the
premiums paid or the existence of other insurance covering the same accident or
disability.

Proscription: A claim not covered by an insurance policy because it is filed after the time
required in the language of the contract.




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Provision: A part (clause, sentence, paragraph, etc.) of an insurance contract that
describes or explains a feature, benefit, condition, requirement, etc. of the insurance
protection afforded by the contract.

Proximate Cause: The dominating cause of loss or damage; an unbroken chain of events
between the occurrence and damage.

Punitive Damages: a court-awarded amount that exceeds the economic losses and
general damages of a plaintiff and is intended solely to punish the defendant.

Pure Premium: The portion of the premium which covers benefits of the policy, but not
expenses, contingencies, or profit.

Quote: A price estimate given to the potential consumer as he/she decides to which
company a formal application will be submitted. Company may be legally bound to honor
this quote in some jurisdictions and/or lines of business.

Rate: The pricing factor upon which the insurance buyer's premium is based.

Rated Policy: Sometimes called an "extra-risk" policy, an insurance policy issued at a
higher-than-standard premium rate to cover the extra risk where, for example, an insured
has impaired health or a hazardous occupation.

Ratemaking: The statistical process by which insurers determine risks and pricing for the
basic classes of insurance.

Rating Territory: A geographical grouping in which like hazards tend to equalize and
permit the establishment of an equitable rate for the territory.

Rebating: Giving any valuable consideration, usually all or part of the commission, to the
prospect or insured as an inducement to buy or renew. Rebating is prohibited by law.

Reduced Paid-up Insurance: A form of insurance available as a non-forfeiture option. It
provides for continuation of the original insurance plan, but for a reduced amount.

Regulation: Supervision of business practices by a governmental entity.

Reinstatement: The resumption of coverage under a policy which has lapsed.




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Reinsurance: Assumption by one insurance company of all or part of a risk undertaken by
another insurance company. The acceptance by one or more insurers, called reinsures,
of a portion of the risk underwritten by another insurer who has contracted for the entire
coverage. The purchase of insurance by an insurance company from another insurance
company (reinsurer) to provide it protection against large losses on cases it has already
insured.

Renewal: Continuance of coverage under a policy beyond its original term by the insurer's
acceptance of the premium for a new policy term.

Renter's Policy: A package type of insurance that includes coverage similar to a property
owners policy to cover the personal property of a renter or tenant in a building.

Replacement Cost: The cost to repair or replace property at construction costs prevailing
at time of loss; the cost to repair or rebuild property without considering depreciation. (See
Actual Cash Value)

Representation: Statements made by an applicant in the application, which he represents
as being substantially true to the best of his knowledge and belief, but which are not
warranted as exact in every detail.

Rescission: Termination of an insurance contract by the insurer on the grounds of
material misstatement on the application for insurance. The action of rescission must take
place within the contestable period or Time Limit on Certain Defenses but takes effect as
of the date of issue of the policy, thus voiding the contract from its inception.

Reservation of Rights: An arrangement whereby an insurer defends a case without
commitment to provide coverage in the event that the facts disclosed during the trial reveal
that the occurrence is not covered.

Reserve: (1) An amount representing liabilities kept by an insurer to provide for future
commitments under policies outstanding. (2) An amount allocated for a special purpose.
Note: A reserve is usually a liability and not an extra fund.

Residual Market: A system through which insurance is made available to buyers that
represent unusually.

Residual Market: A source of insurance available to applicants who are unable to obtain
insurance through ordinary methods in the voluntary market. Also, for high risk applicants
are able to obtain insurance. (See AIP, JUA, Facility)




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Retention: The net amount of risk retained by an insurance company for its own account
or that of specified others, and not reinsured. The amount of the risk kept for oneself, as
opposed to the amount it insures (or reinsures) with another.

Rider: A document which amends the policy or certificate. It may increase or decrease
benefits, waive the condition of coverage or in any other way amend the original contract.
A special policy provision or group of provisions that may be added to a policy to expand
or limit the benefits otherwise payable. A document that modifies the policy. It may
increase or decrease benefits, waive a condition or coverage, or in any other way amend
the original contract.

Risk: The chance of loss. Also used to refer to the insured or to property covered by a
policy. Any chance of loss. A term used to refer to a person or the peril insured.

Risk Classification: The process by which a company decides how its premium rates for
life insurance should differ according to the risk characteristics of individuals insured (e.g.,
age, occupation, sex, state of health) and then applies the resulting rules to individual
applications. (See underwriting)

Risk Control: Any conscious action (or decision not to act) intended to reduce the
frequency, severity, or unpredictability of accidental losses.

Salvage: Recovery made by an insurance company by the sale of property which has
been taken over from the insured as a part of loss settlement.

Settlement Options: The many ways, other than immediate payment in cash, which a
policyholder or beneficiary may choose to have policy benefits paid.

Severability of Interest: A potential liability between different entities named on a single
insurance policy

Short-Term Disability Income Insurance: The provision to pay benefits to a covered
disabled person as long as he/she remains disabled up to a specified period not
exceeding two years.

Sickness Insurance: A form of health insurance providing benefits for loss resulting from
illness or disease.

Soft Market: That part of the insurance sales cycle in which competition is at a maximum
as insurance companies use their excess capacity to sell more policies at lower prices.

Special Risk Insurance: Coverage for risks or hazards of a special or unusual nature.



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Standard Markets: Insurance companies for which the vast majority of people qualify.

Standard Provisions: A set of policy provisions prescribed by former laws setting forth
certain rights and obligations of both the insured and the company under an individual
policy of insurance. These were originally introduced in 1912 and have now been replaced
by the Uniform Provisions.

State Disability Plan: A plan for accident and sickness, or disability insurance required by
state legislation of those employers doing business in that particular state.

State Fund: A fund set up by a state government to provide a specific line or lines of
insurance. Some state permit private insurers to compete with the state fund.

State Insurance Department: A department of a state government whose duty is to
regulate the business of insurance and give the public information on insurance.

State-of-the-Art Defense: An argument used in product liability cases that the technology
needed to avoid the loss in a particular case did not exist at the time of the product's
manufacture.

Statutory Accounting: Special accounting practices for insurance companies required by
state law and designed to provide greater protection for the public against potential
insolvency of these essential institutions.

Statutory Accounting Principles (SAP): Principles required by statute which must be
followed by an insurance company when submitting its financial statements to the various
state insurance departments. Such principles differ from the Generally Accepted
Accounting Principles (GAAP).

Statutory Surplus: The amount left after a company's liabilities are subtracted from
assets when both those values are computed using Statutory Accounting Principles
(SAP).

Statutory Underwriting Profit or Loss: Premiums earned less losses and expenses.

Strict Liability: Liability for damages even though fault or negligence cannot be proven.

Subrogation: Process by which one insurance company seeks reimbursement from
another company or person for a claim it has already paid.

Substandard Insurance: Insurance issued with an extra premium or special restriction to
those who do not qualify for insurance at standard rates.


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Surety Bond: An agreement providing for monetary compensation in the event of a failure
to perform specified acts within a stated period. The surety company, for example,
becomes responsible for fulfillment of a contract if the contractor defaults.

Surplus: The amount by which the value of an insurer's assets exceeds its liabilities, i.e.,
the net worth of an insurance company.

Surplus Lines: (1) A risk or a part of a risk for which there is no normal insurance market
available. (2) Insurance written by non-admitted insurance companies.

Tax Basis: The cost from which your profits or losses are calculated for income tax
purposes.

Third Party: The claimant under a liability policy. The person making the claim is not one
of the two parties, insured and insurer, to the insurance contract. Third party claim: a
demand made by a person against a policyholder of another company and any payment
that will be made by that company.

Time Limit: The period of time during which a notice of claim or proof of loss must be
filed.

Tornado: A whirling wind over land, accompanied by a funnel-shaped cloud. It is usually
very violent and destructive in a narrow path, often for many miles.

Tort: A civil wrong, other than a breach of contract, for which a court of law may afford
legal relief, i.e. harming another by an act of negligence.

Treaty: An agreement between a reinsurer and a ceding insurer setting forth details of the
reinsurance arrangement.

Trust: A legal instrument allowing one party to control property for the benefit of another.

Umbrella Liability: Insures losses in excess of amounts covered by other liability
insurance policies; also protects the insured in many situations not covered by the usual
liability polices.

Underwriter: 1) a company that receives the premiums and accepts responsibility for the
fulfillment of the policy contract; 2) the company employee who decides whether or not the
company should assume a particular risk; 3) the agent who sells the policy.

Underwriting: The process of selecting risks for insurance and determining in what
amounts and on what terms the insurance company will accept the risk.



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Underwriting Profit or Loss: The amount of money which an insurance company gains
or loses as a result of its insurance operations. It excludes investment transactions and
federal income taxes.

Unearned Premium: The portion of a premium that a company has collected but has yet
to earn because the policy still has unexpired time to run.

Uninsurable Risk: One not acceptable for insurance due to excessive risk.

Voluntary Market: The market where one seeking insurance obtains insurance in the
open market with no help from the state, through an insurer of his or her own selection.

Workers Compensation: A system established under state law that provides payments,
without regard to fault, to employees injured in the course and scope of their employment.

Workers' Compensation Insurance: Insurance against liability imposed on certain
employers to pay benefits and furnish care to employees injured, and to pay benefits to
dependents of employees killed in the course of or arising out of their employment.




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                                        REFERENCES

The Florida Senate
http://www.flsenate.gov/publications/2005/senate/reports/summaries/pdf/community.pdf

The Florida Department of Banking and Finance/Office of Insurance’s web sites
http://www.fldfs.com/
http://www.floir.com/

Florida Insurance Council, Inc. web site
http://www.flains.org/public/lb_news.html-ssi

Gold Coast Schools CAM Pre-licensing Study Guide

Haskayne School of Business, University of Calgary, Alberta, Canada web site
http://www.haskayne.ucalgary.ca/

The Insurance Journal San Diego, CA 92108, web site
http://www.insurancejournal.com/newmarkets/

Insurance News Net, web site
http://www.insurancenewsnet.com/aboutus.asp

Wiley Rein & Fielding LLP
http://www.wrf.com/news_release.cfm?press_release_id=2158




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                                         Gone with the Wind
                                           FINAL EXAM

1.   What are the two main types of policies available to an association?

     A.   All Risk & Named Peril
     B.   Multi Peril & Multi Risk
     C.   All Peril & No Risk
     D.   No Fault & Limited Liability

2.   A prudent manager or board would first determine or hire an insurance
     professional consultant to determine what perils and to what degree of risk the
     association is subjected. Such risks include perils of:

     A.   Wind, fire, flood & slip and falls
     B.   Libelous directors & officers, stolen money
     C.   Earthquakes, tornadoes, hail
     D.   All of the above

3.   The first four steps in managing risk are:

     A. Call the insurance commissioner for advice, call gold coast schools, for referrals,
        and then hope for the best.
     B. Identify exposure to various risks, prioritize risk exposures, quantify such
        exposures, identify exposure minimization requirements and quantify cost
     C. Identify exposure to various problems, prioritize problems, identify exposures to
        problems, and quantify problems
     D. None of the above

4.   By Florida statute, the application of _____________ _____________is triggered by
     windstorm losses resulting from “a storm system that has been declared to be a
     hurricane” by the National Hurricane Center of the National Weather Service

     A.   Wind storm insurance
     B.   Hazard relief
     C.   Hurricane deductibles
     D.   Equitable returns

5.   In December, 2004 lawmakers passed a bill that eliminated multiple hurricane
     deductibles as of _________. In addition a reimbursement program was
     implemented for property owners who paid more than one deductible during the
     2004 hurricane season.

     A.   March 2006
     B.   April 2007
     C.   May 2008
     D.   May 2005

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6.   The most popular property owner’s form is _______ and it covers the property for
     everything not specifically excluded. It also covers personal property for _______
     number of perils.

     A.   HO 92       18
     B.   HO 3        18
     C.   HO 8        15
     D.   HO HO       15

7.   Personal liability coverage protects you against a claim or lawsuit resulting from
     bodily injury or property damage to others but it does not cover:

     A.   intentional & non-intentional acts
     B.   intentional damage
     C.   intentional acts of good intention
     D.   attention deficit damage

8.   Effective January 1, 2004, condominium individual unit owners shall insure:

     A. Individual condominium unit owners are exempt from insurance regulation because
        the association is responsible.
     B. Condominium individual unit owners shall not insure anything they feel is important
        to them.
     C. No floor, wall and ceiling coverings, no built-in cabinets & countertops, no electrical
        fixtures, appliances air conditioner or heating equipment, water heaters, water
        filters, window treatments excluding curtain, drapes, blinds, hardware, & similar
        window treatment components or replacements of these located within the
        boundaries of a unit and serve only one unit, not air conditioning compressors
        servicing only an individual unit, whether or not located within the boundary of the
        unit.
     D. All floor, wall and ceiling coverings, built-in cabinets & countertops, electrical
        fixtures, appliances, air conditioner or heating equipment, water heaters, water
        filters, window treatments including curtain, drapes, blinds, hardware, & similar
        window treatment components or replacements of these located within the
        boundaries of a unit and serve only one unit, all air conditioning compressors
        servicing only an individual unit, whether or not located within the boundary of the
        unit.

9.   On March 11, 2004, the Board of Directors held the association’s monthly board
     meeting. At the meeting, a homeowner taunted and harassed one of the board
     members; after putting up with the abuse for some time, the board member punched
     the homeowner in the nose. Which of the following insurance coverage’s may apply?

     A.   HO 3
     B.   Nuisance & Disturbance Policy
     C.   Commercial General Probability
     D.   Directors & Officers

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10. Mr. Frances Charlie Ivan paid over $25,000 in multiple insurance deductible payments
    in 2004. Mr. Frances Charlie Ivan is subject to which of the following?

     A. Part D & E of the HO 8 policy if all premiums were paid in full by December 31,
        2003.
     B. Oh well, that’s the way the wind blows.
     C. Reimbursement of multiple deductibles paid pursuant to Florida law passed in
        December of 2004.
     D. None of the above.

11. The _______ hurricane season shattered records. It was the most devastating
    hurricane season known to man. We had to reach deep into the naming process and
    choose from the Greek alphabet for the first time since storms began acquiring names,
    in 1953.

     A.   2003
     B.   2004
     C.   2005
     D.   2006

12. The term subrogation means:

     A. Process by which one insurance company seeks reimbursement from another
        company or person for a claim it has already paid.
     B. The right to sue another person insured under the same policy.
     C. A term that relates to a subversive behavior.
     D. A process by which one insurance company seeks reimbursement from the
        insurance commissioner’s office for over regulation of the insurance industry.

13. The Department of Financial Services (OIC) Office of insurance mediation program
    offers a dispute resolution process for condominium associations and other
    commercial residential properties to resolve _______________ prior to pursuing other
    options such as going to court. The mediations are free of charge and using the
    program does not preclude an association's right to take the dispute to court or to
    invoke the policy appraisal clause.

     A.   Board of Directors disputes
     B.   Personal Injury Protection
     C.   Multi Peril claims
     D.   Hurricane claims




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14. There are currently some possible proposed legislative changes that may include that
    Citizens Insurance:

     A. retain the three existing citizens accounts (commercial- residential, personal lines,
        and high-risk), but eligibility for coverage under these accounts is limited to
        properties (single family properties, condo units, and certain condo associations)
        qualified as property stead property as defined by law with respect to condominium
        association policies, the association would be eligible for a citizens policy only if at
        least 50% of the units in the association are qualified as property stead’s.
     B. some flexibility for carriers in setting property insurance rates.
     C. restrict eligibility for property owner's insurance with Citizens to properties with a
        dwelling value less than $1 million. Exempts admitted insurers in the private market
        who want to insure these properties from the OIR's rate approval.
     D. all of the above.

15. After January 1, 2004 the association must provide primary coverage for:

     A. All portions of the condominium property located outside the units, condominium
        property located inside the units, all portions of the condominium property for which
        the declaration of condominium requires coverage by the association.
     B. All portions of the condominium unit owners property whether located inside or
        outside the units, all condominium unit owners property located inside the units, all
        portions of the condominium property for which the declaration of condominium
        requires coverage by the association.
     C. All portions of all property located inside and outside the units, including unit owner
        and condominium property located inside the units, all portions of the condominium
        property for which the declaration of condominium and unit owner demands
        requires.
     D. None of the above

16. Gross negligence means:

     A. The intentional failure to perform a manifest duty in reckless disregard of the
        consequences as affecting the life or property of another.
     B. The unintentional failure to perform a manifest duty in reckless disregard      of
        the consequences as affecting the life or property of another.
     C. The intentional success of performing and manifesting one’s duty in careful regard
        of the consequences.
     D. All of the above.




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17. Named Perils coverage is a type of property policy that provides protection against
    loss from:

     A. Only covers the perils specifically listed in the policy rather than protection from
        physical loss.
     B. All risk regardless if named or not.
     C. All risk that are not named in the policy.
     D. None of the above.

18. In 2002, the Florida Legislature passed a law that combined the Florida Residential
    Property and Casualty Joint Underwriting Association (FRPCJUA) and the Florida
    Windstorm Underwriting Association (FWUA). This resulted in the creation of:

     A. Citizens Property Insurance Corporation (Citizens), which more efficiently and
        effectively provides insurance to, and serves the needs of, property owners in high-
        risk areas and others who cannot find coverage in the open, private insurance
        market.
     B. The Property Insurance Council which is designed to meet the needs of low risk
        property owners.
     C. High Hazard Insurance Group which is designed to provide co-insurance.
     D. None of the above.

19. Cause of loss forms are added to commercial property insurance policy and these
    forms indicate which causes of loss are covered. What are the three causes-of-
    loss forms?

     A.   Broad, special, modified
     B.   Basic, bored, super
     C.   Basic, breech, superb
     D.   Basic, bombastic, spectacular

20. Ordinances & Law coverage is designed to provide protection against financial loss for:

     A. Loss of value of an undamaged portion of the existing building which must be
        demolished and/or removed to conform with municipal ordinance, code, etc.
     B. Cost of demolition of the undamaged portions of the building necessitated by the
        enforcement of building, zoning or land use ordinance or law.
     C. Increased expenses incurred to replace the building with one conforming to building
        laws or ordinances, or to repair the damaged building so that it meets the
        specifications of current building laws or ordinances.
     D. All of the above.




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