Coverage Analysis & Policy Interpretation Flashcards

What is a 'sublimit' within an insurance policy?

Answer: A lower limit of coverage that applies to a specific category of property or type of loss within the overall policy limit

A sublimit is a cap on the amount the insurer will pay for a specific type of property or peril (e.g., jewelry, flood, or business income), even if the total policy limit is higher.

Under the 'other insurance' provision, what does 'pro rata' liability mean when multiple policies cover the same loss?

Answer: Each insurer pays its proportionate share of the loss based on its policy limit relative to the total of all applicable limits

Under pro rata liability, each insurer contributes to the loss in proportion to its policy limit compared to the combined limits of all applicable policies, preventing the insured from collecting more than the actual loss.

What is the primary purpose of a 'vacancy clause' in a commercial property insurance policy?

Answer: To reduce or suspend coverage for certain perils when a building has been vacant beyond a specified period

Vacancy clauses typically suspend or limit coverage for certain perils (such as vandalism or glass breakage) when a building has been vacant for a defined period (often 60 days), because vacant buildings present higher risk.

What is the key difference between an 'occurrence' policy and a 'claims-made' policy?

Answer: An occurrence policy provides coverage if the loss event happens during the policy period, regardless of when the claim is filed; a claims-made policy requires both the event and the claim to occur during the policy period

An occurrence policy covers losses that occur during the policy period no matter when the claim is later reported, while a claims-made policy only covers claims both caused by events and reported during the active policy period (or an extended reporting period).

What does 'insurable interest' require for a property insurance claim to be valid?

Answer: The insured must have a financial stake in the property such that damage to it would result in a direct financial loss to them

Insurable interest exists when the insured would suffer a direct financial loss if the covered property is damaged or destroyed; without insurable interest, the policy is unenforceable to prevent wagering contracts.

What is the purpose of a 'cooperation clause' in an insurance policy?

Answer: It requires the insured to assist the insurer in the investigation, settlement, and defense of claims

The cooperation clause is a policy condition requiring the insured to assist the insurer by providing requested documents, submitting to examination under oath, and cooperating in the investigation and defense of claims; failure to cooperate can void coverage.

Under the reasonable expectations doctrine, how should courts interpret ambiguous policy language?

Answer: In favor of the insured's objectively reasonable expectations of coverage

The reasonable expectations doctrine provides that ambiguous policy language should be interpreted in favor of the objectively reasonable expectations of the insured, since the insured typically cannot negotiate policy terms.