CHAPTER TWO - TREATMENT OF INLAND MARINE LOSS EXPOSURES

 

Generally speaking, Inland Marine losses can be “treated” by

1. avoidance,
2. loss control,
3. retention,
4. transfer other than insurance, and
5. insurance.

 

All of the above “treatments” are properly the purview of Rick Management, Safety Management, etc., except for “insurance.”  Therefore, since insurance is the topic under discussion, the other treatments of loss will not be studied in this text.  Instead, Underwriting will be next addressed.

 

INLAND MARINE UNDERWRITING

 

 

Underwriting in Inland Marine it means deciding which risks are acceptable, on what basis and terms, and the premiums to be charged.  The purpose of underwriting is to spread the risks among a pool of insureds in a manner that is equitable for the insureds and profitable for the insurer.  The Inland Marine underwriter does not stop there; however, as they also monitor the decisions that they have made.

 

Inland Marine underwriters are typically specialists in certain areas, although with smaller companies they are “jack-of-all-trades” and their technical knowledge of so many types of businesses and operations grows throughout their years of experience, to where they can best be described as “phenomenal.”  Underwriters must continually keep up to date with a very wide variety of business policies, procedures, practices, and most importantly, risks.  Rather than attempt to list the areas in which they must be knowledgeable – which actually covers several manuals – just reviewing the coverages, conditions, exclusions, etc., of the Inland Marine forms used in this text, will give a good indication of the vast knowledge they must have.  Also, as it will be apparent, there are so many types of Inland Marine coverages necessary and new ones appear every day, that it would take volumes to keep up with them.

 

Underwriters, as technicians in many disciplines, frequently use words that mean different things to them, than to others.  For instance, “risk” generally means an exposure to something that could possibly occur which would result if a financial loss.  But to an underwriter, it could be a “good risk”, or a “marginal risk.”  Underwriters also use the word “hazard” to mean anything that can increase the probably frequency of a loss, or how severe the loss can be.  Even peril and hazard are used interchangeably at times by underwriters.

 

An underwriter actually has several functions.  To start with, their job is to satisfy what is wanted &/or needed by the customers, and to do so at a profit.  An Inland Marine underwriter must be extremely flexible just to accomplish this function because of all of the myriad of uses of Inland Marine insurance.

 

Of course the coverage must always be at the right price, meaning a price affordable by the customers, and still sufficient to maintain a profit margin for the insurance company.  With the prices of some things fluctuating greatly, and new risks to be insured popping up continually, this is very difficult to do. 

 

All underwriters have certain selection standards dictated by management of the insurance company, and to make sure that these standard are applied properly so that the company can get a deserved profit.  “Adverse selection” often rears its ugly head in underwriting – this is when there is a demand for insurance by those who are almost guaranteed to have a loss.  As an example, celebrities are targets for jewelry theft – they wear more of it than others, the jewelry they wear is more expensive, and being celebrities, their personal affairs are more in the limelight.  This is stretching it a little, but assume that the only people who want insurance coverage against theft or jewelry were celebrities, then this would be “adverse selection.”  Another, more compelling example, would be if women who are pregnant and without health insurance maternity benefits, could get maternity benefits as soon as they discovered they were pregnant.  Adverse selection, no doubt.

 

In life and health insurance, pricing is performed by actuaries.  In Inland Marine insurance, actuaries are not used that much for pricing.  Pricing is determined by “rates” and rates are determined by rating organizations generally.  Underwriters have the responsibility of applying these rates properly, and also in determining the rates to be used.  Rates are generally expressed as a dollar amount per dollar amount of coverage (rates of $3.00 per $1,000 of exposure, for instance).  It is also up to the underwriter to determine if the “standard” rates or “average” rates are adequate for the risk.

 

With these responsibilities, it is obvious that the underwriters must always maintain professionalism, especially since they also “service” much of the business they underwrite.  Inland Marine insurance, in particular, has many, many situations that can arise and risks that need to be insured and that change continually, so the interface between the underwriters and the customers can often be on a continuing  basis.

 

To simplify the underwriters “job”, it is decision.  These decisions fall into one of 3 categories:

 

(1) ACCEPT WITHOUT ALTERATION

This is particular prevalent when the policy is a renewal, but it applies as the first step in accepting new business also.  If the business can be accepted as applied for, the underwriters job has just been made a lot easier.  With some types of risk, it can happen often, with other risks, hardly ever.

 

(2) ACCEPT SUBJECT TO MODIFICATION

Assuming that the risk cannot be accepted as applied for, frequently modifications can be made so that it is acceptable.  There is a rule in underwriting, that the more complex the application, the more changes that can be made.  Some of the more obvious changes are:

 

Hazard Reduction.  Security guards, smoke/fire/theft alarms, better packaging materials, chain-link fences with limited access, etc., etc., are all examples of hazard reduction.

 

Modify the Rate.  This can obviously be one method, but remember that many rates are filed.  In some situations, there can be “consent to rate” laws, which means that if the insurer wants to charge different rates, they may do so if it is approved by the insured.  For nonfiled rates, rates are based on averages and are entirely negotiable. 

 

Modify the Coverage.  A change in coverage can make a formerly unacceptable risk acceptable.  For instance, if a risk has a history of small losses, an increase in the deductible can make it acceptable to the company.  Changing from an All-Risks policy to a Named Perils policy can make an application acceptable.  The amount of modification will depend upon whether the form is filed or nonfiled.  With a filed form, the modifications would be quite limited.

 

Modify Retention.  This is an internal (within the insurance company) option that does not directly affect the customer.  The underwriter may suggest retaining a small amount within the insurance company, and reinsuring the excess with another reinsurer or insurance company.  On many nonfiled cases, this is typical.  In some cases the insurer may not have experience, or large enough block of a particular type of business, to retain much if any of the risk.  A reinsurance company with more of a spread of risk or more experience can get the policy issued.

 

(3) REJECT.  If all else fails, then the only alternative is to reject the business.  It is always in the mind of the underwriter that they are in business to accept business, and it is expensive to turn it down as there are underwriting and issue expenses – not to mention rapport with the agents – which have already cost money and which will not be recovered with a rejection.

 

 

 

 

 

RATES AND RATE-MAKING

 

The two terms that always show up when pricing of a policy is discussed, is “rate” and “rate-making,” As explained earlier, a rate is the price per exposure unit, charged by the insurer for insurance coverage.  Rate-making is the process of determining the rates.  There are 3 basic types of rates:

1. class (manual) rates,
2. individual rates, and
3. judgement rates.

 

CLASS (MANUAL) RATES

These are rates that are applied to all members of a group (don’t confuse with “group” insurance).  They are developed by grouping together many insureds who have similar characteristics into a single “class”.  By their very nature, they have a tendency to reflect average costs, such as average losses, average loss expenses, etc.  Class rates are for, as an example, jewelry coverage.  These rates can vary also by geographical location, such as different rates for the same exposure in different states.

 

INDIVIDUAL RATES

 

Individual rates are essentially Manual rates adjusted or modified to meet the particular criteria of the risk involved.  If the class rates pertain to a certain risk category, then those that have less risk within that category could pay less premium, and conversely, those with more risk could pay more premium (higher rate). 

 

One example often used to illustrate this is to consider a brick building within a specified fire protection zone.  If the building were a residence, then one class of rates would apply.  However, assume that it is for business use, then the rate would start at the class rate, but then would be adjusted either up or down, depending upon occupancy, protection, exposure, and any existing hazards, either from within or adjacent buildings. 

 

Another usage is based upon the fact that it is more expensive to handle a monthly reporting policy on goods in transit, than it would be to issue an annual policy for a maximum limit that would probably not generate any administrative cost or premium until the end of the policy year.

 

JUDGEMENT RATES

 

There are three different situations where judgement rating will apply.  First, there are certain risks for which there are no rates available to deviate from or to modify.  Therefore, the underwriter must search for all available statistical information and estimate the possible and probably frequency and severity of loss.  This information is then compared to situations as close as possible as the risk being underwritten.

 

Secondly, an underwriter can determine unusual situations involving a risk for which there are rates.  A warehouse with new, state-of-the-art security devices could lower the premium.  Conversely, a warehouse that meets all of the underwriting criteria for the rates, but adjacent buildings have more-than-usual losses within a recent time period, could indicate that the rates might be inadequate. 

 

Thirdly is where new coverage is being developed and there is little, if any, pertinent statistical date available to establish the initial rates.  This would apply if there were a new type of insurance on the market, such as involving technological advances.  Physician’s and Surgeon’s Equipment Form coverage is another example where new and expensive diagnostic equipment is insured. 

 

Judgement rating must be used when there is no or little published information or statistical information regarding the risk.  This is where experience, training and knowledge of the underwriter comes into play, along with an awareness of competition in the market.

 

RATE-MAKING

 

Many types of filed rates are derived from some sort of scientific data, particularly in those classes of risk there are a large number of exposure units, and there are detailed records on the losses and loss adjustment expenses.  The rates derived in these situations, are called “pure premium” rates which can then be adjusted for inflation, overhead expenses, and differences in exposures and expenses. 

 

Risks which are primarily located at a particular location and where the building and occupancy constitute the principal hazards, frequently are rated using the fire contents rates, and then “loaded” to reflect other perils to be insured. 

 

Risks, which involve property, and particularly those that are usually in transit, are judgement rated.  To make it more difficult, the underwriter has to take into consideration the individuals and businesses that may have custody or control of the property insured, and underwrite them as well. 

 

 

 

INLAND MARINE POLICY PROVISIONS

 

Many Inland Marine insurance policies are nonfiled, however the forms described here are considered as the industry standards.  Therefore, many of the nonfiled forms closely resemble the industry standards, particularly when a nonfiled coverages are added to a filed form, such as to a Commercial Package Policy that otherwise uses filed forms. 

 

In some cases, the nonfiled forms are original, one-of-a-kind, that have little resemblance to any filed forms.  Some of these will be discussed by addressing the different approaches that insurance companies may take when creating the nonfiled forms.  The actual provisions will be discussed later in this text.

 

An ISO Commercial Inland Marine Coverage Part actually consists of four separate and distinct documents:

1. Coverage Forms (may be more than one) that contain the provisions that specifically apply to the property being insured by that particular form.
2. A Declarations Page, as with all insurance, it shows the insurance limits, the premium, deductible, and other important information pertaining to the Coverage Form.
3. Commercial Inland Marine Conditions Form which contains the provisions that generally apply to all Inland Marine insurance forms.
4. Endorsements that are added to the Coverage Part which amends or changes the policy provisions so that it is acceptable to both the insured and the insurance company.

 

If an Inland Marine policy is to be a Monoline policy – defined as a policy that only covers Inland Marine coverage – there are two other documents involved:

1. Common Policy Declarations which show the insured’s name, address, effective and expiration dates of the policy, a description of the business insured, the premium, and a list of all of the coverage parts that are included in the policy.  This Declaration may be combined with the Declarations of the particular Coverage Form.
2. Common Policy Conditions Form, which conditions relate to the cancellation, changes or payment of premium, that affects any type of coverage, (Inland Marine or any other type).

 

As described earlier, if the Inland Marine coverage is to be part of a Commercial Package Policy, then the above documents are combined with other additional coverage parts.

 

OPEN PERILS BASIS

 

While it may appear that this is going to be terribly confusing, with all of the various coverages, it is not necessary so.  The plans are all written on an Open Perils basis.  This means that all physical damage to the property insured is covered, unless specifically excluded.  Three of these are on a “reporting basis”

 

COVERAGE

 

The Coverage section contains at least 4 major provisions, generally titled “Covered Property,” “Property Not Covered,” “Covered Causes Of Loss,” and “Additional Coverage –Collapse.” 

 

Covered Property, and Property Not Covered are different between policy forms as the policies and forms are designed to cover different areas and to different classes of property.  The two parts state what is covered and what is not.

 

Covered Causes of Loss usually is defined in the policy as “Risks of direct physical loss to covered property except for those causes of ‘loss’ listed in the exclusions.”  This statement is what makes a true “All-Risks” policy.  When the word “loss” is used, it is defined as accidental loss or damage.  The words direct and physical are used often in the ISO forms and are construed to  (a) exclude loss of income from the business stopping or shutting-down, and  (b) any extra expense that may be incurred by the insured due to the damage or destruction of the covered property.  Note, however, that these coverages (called “time element” coverages) can be provided through certain nonfiled Inland Marine coverage forms, or through other commercial property forms.

 

Commercial Inland Marine forms will exclude collapse, except as provided in the Additional Coverage – Collapse part of the coverage form.  This means that a loss because of a collapse or partial collapse of a building, will be covered only if the collapse is due to a cause of loss that is stated in this provision.  These losses are:  fire, lightning, windstorm, hail, explosion, smoke, aircraft, vehicles, riot, civil commotion, vandalism, breakage of glass, falling objects, weight of snow-ice-or sleet, water damage; hidden decay, hidden insect or vermin damage, weight of people of personal property, weight of rain that collects on a roof, and use of defective materials or methods in construction, remodeling or renovation.

 

The reason that this provision is set up the way that it is because of a legal doctrine adopted by several states, the doctrine of Concurrent Causation. 

 

 

A certain amount of controversy exists when one of the perils is insured and the other peril is excluded from coverage.  Some courts are beginning to find that even if only one of the perils is insured against, the policy providing the coverage for that peril must pay the damages.  Because of this, many insurers became concerned that some losses that was caused by a peril that was excluded in the policy, might become covered if the result was not specifically covered.  As an example, earthquake could be excluded and collapse was not excluded, therefore if a building collapsed as the result of the earthquake, would coverage be afforded?  This “Additional Feature – Collapse” is designed to eliminate this possibility because it states that collapse is covered only if it results from one of the listed perils.

 

There are also Coverage Extensions and Coverage Options; the extensions provides coverage for exposures that would not ordinarily be covered by the form.  The options merely indicates that certain coverage is available but the coverage is at the option of the insured, and usually they are available only upon the payment of an extra premium.

 

EXCLUSIONS

 

In Inland Marine insurance, the Exclusions play as important a part of defining what is covered by a particular policy or form, as does the “Coverages” section. 

 

 

Since there are a multitude of policies and forms available to provide coverage for innumerable exposures, the exclusions will vary from one form to another.  It will be noted in describing various forms in this text how some forms cover a peril, and others do not.  However, there are a number of common exclusions in the standard ISO Inland Marine forms.  They need to be described in this section so that they do not have to be repeated throughout the text.  Similar exclusions will be found in nonfiled forms also.

 

Named Perils types of forms provide a distinct approach in this matter.  The exclusions in a Named Perils policy usually indicate what aspects or parts of a (named) peril that the insurer does not want to insure. 

 

The exclusions in an ISO Commercial Inland Marine policy can be broken down into three categories. 

 

1.  The first category of exclusions are those of earthquake, governmental action, nuclear hazard, war & military action, and water.  Governmental action, nuclear hazard and war/military action, exclusions are always found in the ISO Inland Marine forms, while water and earthquake are found only in a few forms.  These exclusions can be discussed in great detail, however the various forms will specify the definitions of these exclusions and their applicability to the particular peril covered.  There is one thing in common with the exclusions in this category, and that is that in every case there could be catastrophic consequences.

 

It should also be noted that the exclusions in this category are prefaced in the form by stating that the insurer will not pay for any loss caused directly or indirectly by any of the “causes of loss listed below”, and is excluded “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”  This is another application of the concurrent causation doctrine discussed above, which eliminates coverage for any loss involving these exclusions, even though a peril that is not specifically excluded contributed to the loss.

 

2.  Another category of exclusions are prefaced by wording such as “We will not pay for loss caused by or resulting from any of the following…” These losses are not subject to the concurrent causation language, and vary greatly from form to form.  While these exclusions are far to numerous to list, there are three exclusions that are found in nearly every type of ISO form that should be discussed here. 

 

(1) The first is called the “false pretense” exclusion and is used also in commercial property All-Risks policies, commercial crime policies and other commercial coverages.  It excludes loss by “Voluntary parting with any property by you or anyone entrusted with the property if induced to do so by any fraudulent scheme, trick, device or false pretense.”  If this seems to be exclusion against a swindle by a con-man, then that is exactly what it is.  The insurer excludes these losses because they can be avoided if due diligence is exercised. 

 

 

(2) Another exclusion of this type found in most Inland Marine policies applies to any loss caused by or resulting from “unauthorized instructions to transfer property to any person or to any place.”  A good example of this would be computer hacker who “hacks” into a computer system and instructs the system to transfer goods to a location where it will be recovered by the hacker.

 

(3) The third type of exclusion found in most Inland Marine policies eliminates any coverage because of delay, loss of use, loss of market, or any consequential loss.

 

3.  The third category of exclusions states that the insurance company will not pay for any loss that results for any of the excluded causes, but if a loss by a covered cause results from the excluded cause of loss, the resulting loss will be paid.  This is rather like the second category reversed.  In other words, if an exclusion will not allow coverage for loss due to materials used in repair or construction, and if a fire broke out because the materials used in the electrical wiring of the building under construction, then damages due to the fire (provided the fire is a covered cause) would be paid.

 

COMMON POLICY CONDITIONS

 

 

For example, the insured must pay the premium when due, notify the insurer as soon as possible in case of an accident, and cooperate with the company in defense of the insured in case of a liability suit.

 

The Common Policy Conditions that are present in all Inland Marine Policies, under the ISO form are lettered A through F.  (Note:  The ISO Form will be used throughout this text.  The American Association of Insurance Services text may be available from them if desired.  Generally speaking, however, the filed forms are approved by various State Insurance Departments, and while the wording may vary in some respects, the coverages offered should be very similar, if not exactly the same.)

 

A. CANCELLATION

 

BY THE INSURED

The “First Named Insured” as shown in the Declarations, has the right to cancel the policy by mailing or delivering in some other fashion, written notice of cancellation.  Note the “First Named Insured” terminology.  On the Declaration Page, the name of the insured is listed.  It is certainly a possibility that there can be more than one insured, so all of the insureds are listed.  But what would happen if there should be a disagreement for example partners not agreeing on a claim amount offered by the insurer.  By making the first person named as an insured as the responsible party, the insurer can remain aloof of any internal friction – as they should always be in those situations. 

 

Regardless of the relationship between the first named insured and those named after, only the first named insured has the right to cancel the policy by notifying the insurance company.

 

Conversely, if the policy is cancelled by the insurance company as indicated below, the return of premium due (if there is any) would be made only to the first named insured.

 

BY THE COMPANY

As expected, the provisions for cancellation by the company are more detailed.  There are two reasons for an insurance company to cancel the policy:  Non-payment of premium, or any other reason. 

 

If the policy is cancelled by the company for non-payment of premium, the company must provide to the First Named Insured (FNI) written notice at least ten (10) days before canceling.

 

If the policy is cancelled for any other reason, other than non-payment of premium, the company must provide the FNI with written notice at least thirty (30) days before canceling.

 

The notice of cancellation must be sent to the last known address of the FNI, either by mail or some other means, and will state the effective date of the cancellation, i.e., when the policy ceases to exist.  If the notice has been mailed, the proof of mailing (receipt) will be sufficient to prove that the notice was mailed. 

 

The company will send to the FNI any premium refund due.  The form stipulates that if the insurer cancels, the refund will be pro-rata (unearned premium).  However, if the insured cancels, then the company may use a system that refunds less than the pro-rata amount.  The cancellation will be effective whether a return of premium offer has been made or not.

 

 

B.  CHANGES

 

Inland Marine insurance, in particular, is susceptible to a great many changes during the policy period.  Cargo trucks may haul different cargoes with different values, to various places, and even by various means.  A jewelry store can have an inventory that fluctuates – for instance at Christmas the inventory can increase in anticipation of sales.  The value of equipment and the type of equipment used by doctors and surgeons, can vary considerably, depending upon specialty of the doctor (and what if he changes specialty). 

 

Inland Marine insurance must be able to be changed rapidly, but the insurance company still has to maintain good business practices.  Therefore, if there are any changes to be made, again they must be made by the FNI, but only with the consent of the insurer.  Any changes so requested can be accomplished only if the company issues an Endorsement covering what has been requested.  Thereafter, it becomes part of the policy.  These Endorsements can be completed rapidly.  Binders whereby the insurance company accepts the coverage even before the Endorsement can be completed at the Home Office can be issued rapidly, and in some cases, the Endorsements can be faxed the same day. 

 

C.  EXAMINATION OF BOOKS AND RECORDS

 

While it would be obvious to any insured that the insurance company has the right to examine the books and records of the insured, many insureds do not realize that they can do so as long as three years after the policy has expired.  The inspection of books and records is always necessary to confirm and verify the information upon which the premiums are based.  But what is the necessity of looking at the books and records of a former insured three years after the policy has expired?  There can be many reasons, see the Consumer Application below.

 

 

D.  INSPECTIONS AND SURVEYS

 

The insurance company retains the right to make inspections and surveys at any time.  The purpose of this, of course, is to always allow the insurance company to make sure that there has been no substantial change in the situation as originally represented to the insurer, and that the information upon which the premiums are based, have not changed.  The insurance company is under no obligation to provide the insured with results of any such inspection or survey; however, they may do so if they – the insurer – determines that they want to furnish such results.  The insurance company may also make suggestions and recommendations as a result of the inspection or survey.  It must always be remembered that the insurance company is under no obligation to provide this information.

 

Any inspections or surveys performed by the insurance company are done so only for the purpose of establishing or verifying premiums and/or to make sure that the risk is insurable under the provisions of the Inland Marine policy form.  They make it abundantly clear in this provision, that they (the insurer) are NOT performing safety inspections. 

 

Most businesses with employees or performing certain types of business, are subject to Occupational Safety and Health Administration (OSHA) laws and regulations, and are either required to have periodic safety inspections, or have such safety inspections as a matter of good business.  It will not suffice to show that the Inland Marine insurance company performed an inspection and that should satisfy OSHA or other regulatory legal requirements.

 

Since many insurers will use an outside inspection company to perform these functions, this provision covers such service companies also.

 

 

E.  PREMIUMS

 

This condition just verifies the situation of the First Named Insured in respect to premiums, i.e., the First Named Insured is responsible for the payment of all premiums, and in case of any return of premiums, and they will be paid to the First Named Insured.

 

F.  TRANSFER OF RIGHTS AND DUTIES UNDER THIS POLICY.

 

Any rights or duties of the insured(s) cannot be transferred without the written express and explicit consent of the insurance company, unless an individual named insured dies.

 

If an individual named insured dies, then the rights and duties under the insurance policy will be transferred to the legal representative of the deceased insured, but only to the extent that the representative is acting within the scope of the duties as representative.  If a legal representative needs to be appointed, until such time that the appointment is made, any person having “proper” (legal) temporary custody of the property, can act as the deceased insured, but only to extent that it has a direct bearing on the property.

 

 

 

STUDY QUESTIONS

 

1.  The Inland Marine underwriters are somewhat unique in insurance, as they

      A.  are all engineers.

      B.  monitor the decisions that they have made.

      C.  only determine the premium to be charged.

      D.  made decisions as to what is acceptable and on what basis, but have no
                  input into pricing.

 

2.  There are three basic types of rates for Inland Marine insurance, but it does
           NOT include

      A.  class rates.

      B.  confiscatory rates.

      C.  individual rates.

      D.  judgement rates.

 

3.  An ISO Commercial Inland Marine Coverage Part actually consists of

      A.  4 documents:  Coverage Forms, Declarations Page, Commercial Inland
                 Marine Conditions Form and Endorsements.

      B.  4 provisions:  Covered Property, Property Not Covered, Covered Causes
                of Loss and Additional Coverage-Collapse.

      C.  a Title Page, a Declarations Page, a Coverage Page and Exclusions.
            D.  a single document outlining what is to be covered, how it is covered and
                  exclusions.

 

4.  The Covered Causes of Loss provision of an Inland Marine policy

      A.  states that only those causes of loss specifically outlined in Declarations,
                 are covered.

      B.  states that the insurance applies to risks of direct physical loss except for
                 the cause of loss listed in the exclusions.

      C.  states that the insurance applies to risks of direct physical loss which
                  supercede all exclusions listed hereafter.

      D.  is used only for Transportation policies.

 

5.  Who has the right to cancel an Inland Marine insurance policy?

      A.  the first named insured (and the insurance company under certain
                  conditions).

      B.  any of the named insureds.

      C.  the insurance agent and the first named insured,

      D.  the insurance company and notification of the insured is not necessary.

 

6.  If an insurer makes an inspection of an insured,

      A.  they must have written approval of each inspection and perform the
                  inspection for safety purposes.

      B.  they are under no obligation to provide the results of the inspection to the
                  insured.

      C.  they must make all results of any inspection or survey available to the
                  insured.

      D.  this will satisfy the requirements of the OSHA.

 

7.  If a named insured dies, the rights and duties under the insurance policies

      A.  cannot be transferred, so the policy will be cancelled and unearned
                  premiums refunded.

      B.  will be transferred to the legal representative of the deceased, who will
                  have unconditional full authority to those rights and duties.

      C.  will be transferred to the heirs as named as Beneficiaries in the insurance
                  policy.

      D.  will be transferred to the legal representative of the deceased, but only to
                  the extent that the representative is acting within the scope of the duties as
                  representative.

8.  Bruce Industries was insured by Muskogee Insurance.  They filed a claim for property        damage caused by a covered peril, and the claim was paid.  The next month they cancelled their insurance with Muskogee and placed it with another insurer.  Muskogee discovered some pertinent information after the policy was cancelled, that could have a direct bearing on the claim that had been paid to Bruce.

      A.  There is nothing Muskogee can do as Bruce is no longer an insured of theirs.

      B.  Muskogee can examine the books of Bruce for as long as five years after the policy
                  expired.

      C.  Muskogee cannot inspect the books of Bruce without Bruce’s consent, but if they do
                  not give their consent, then Muskogee can sue for the return of the entire claim
                  amount.

      D.  Muskogee can inspect the books of Bruce for as long as three years after the policy
                  expired.

 

9.  Since circumstances surrounding risks covered by Inland Marine policies, frequently       change quite rapidly,

      A.  the policy must be written so that there can be no changes during the policy year.

      B.  any changes must be made by the First Named Insured ,and becomes effective when
                  the agent receives the information.

      C.  any changes must be made by the First Named Insured, and becomes effective when
                  the insurance company issues an Endorsement covering what has been requested.

      D.  it sometimes takes several weeks to receive an Endorsement from the insurer, with
                  the least amount of time involved usually is around 3 weeks.

 

10.  The only reason(s) an insurance company will cancel a policy is (are)

      A.  non-payment of premium, and any other reason.

      B.  fraud, withholding of pertinent information, underwriting review results.

      C.  non-payment of premium only.

      D.  at the direction of the Department of Insurance.

 

ANSWERS TO STUDY QUESTIONS

 

1B     2B     3A     4B     5A     6B     7D     8D     10A